Question 1

If SA raises its tariff on imported sugar, it will reduce imports and improve its trade balance.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that SA investors decide that investment opportunities in Western African countries have improved.What happens to SA net capital outflow? What happens to the SA real interest rate?

Accepted Answer

SA net capital outflow will in...

Question 3

Which of the following statement regarding the loanable funds market is true?

Accepted Answer

A)  A decrease in the government budget deficit increases the real interest rate.
B)  An increase in the government budget deficit shifts the supply of loanable funds to the right.
C)  An increase in private saving shifts the supply of loanable funds to the left.
D)  An increase in the government budget deficit shifts the supply of loanable funds to the left.E) None of the above
F) B) and C)

Question 4

Why do higher real interest rates lead to lower net capital outflow?

Accepted Answer

Higher SA interest rates make SA assets ...

Question 5

A country's net capital outflow is always equal to its net exports.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements about trade policy is true?

Accepted Answer

A)  A country's trade policy has no impact on the size of its trade balance.
B)  None of these answers.
C)  A restrictive import quota decreases a country's net exports.
D)  A restrictive import quota increases a country's net exports.E) None of the above
F) A) and B)

Question 7

Consider this diagram of the market for foreign currency exchange.If the US government decides to increase import tariffs on imported steel, we could expect the 1 to D2. B) demand for dollars to shift from D2 to D1. C) supply of dollars to increase. D) supply of dollars to decrease." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  demand for dollars to shift from D1 to D2.
B)  demand for dollars to shift from D2 to D1.
C)  supply of dollars to increase.
D)  supply of dollars to decrease.E) A) and B)
F) B) and C)

Question 8

The link between the loanable funds market and the foreign exchange market is

Accepted Answer

A)  the governments of the countries involved.
B)  the International Monetary Fund.
C)  net capital outflow.
D)  purchasing power parity.E) A) and C)
F) A) and B)

Question 9

Suppose that SA citizens start saving more.What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Accepted Answer

The supply of loanable funds increases, ...

Question 10

Assuming all other things unchanged, a higher SA real interest rate

Accepted Answer

A)  decreases SA net capital outflow because SA residents and foreigners prefer to invest in SA.
B)  None of these answers.
C)  decreases SA net capital outflow because SA residents and foreigners prefer to invest abroad.
D)  increases SA net capital outflow because SA residents and foreigners prefer to invest in SA.E) B) and C)
F) C) and D)

Question 11

If SA imposes a quota on the importing of clothing produced in China, so reducing SA imports of clothing, which of the following is true regarding SA net exports?

Accepted Answer

A)  Net exports will rise.
B)  None of these answers.
C)  Net exports will fall.
D)  Net exports will remain unchanged.E) None of the above
F) A) and B)

Question 12

If SA raises its tariff on imported sugar, domestic sugar growers will benefit, but the rand will appreciate and domestic producers of export goods will be harmed.

Accepted Answer

A) True 
 B)False

Question 13

Explain how an increase in the demand for capital goods in South Africa can lead to a change in the value of the rand against other currencies.

Accepted Answer

An increase in demand for capital goods ...

Question 14

If a country's government increases its budget deficit, then the

Accepted Answer

A)  supply of loanable funds will increase.
B)  supply of loanable funds will decrease.
C)  real interest rate will fall.
D)  real exchange rate will fall.E) None of the above
F) A) and C)

Question 15

A country experiencing capital flight will experience a reduction in its net capital outflow and its net exports.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements regarding the market for foreign currency exchange is true?

Accepted Answer

A)  An increase in SA net capital outflow increases the supply of rands and the rand depreciates.
B)  An increase in SA net capital outflow increases the demand for rands and the rand appreciates.
C)  An increase in SA net capital outflow increases the demand for rands and the rand depreciates.
D)  An increase in SA net capital outflow increases the supply of rands and the rand appreciates.E) A) and D)
F) None of the above

Question 17

Net capital outflow is the purchase of domestic assets by foreigners minus the purchase of foreign assets by domestic residents.

Accepted Answer

A) True 
 B)False

Question 18

If a country's government wants to eliminate a trade deficit, its most effective policy would be to

Accepted Answer

A)  reduce tariffs.
B)  encourage imports.
C)  impose quotas on imports.
D)  reduce its budget deficit.E) B) and C)
F) C) and D)

Question 19

A large and sudden movement of capital out of a country is called

Accepted Answer

A)  capital inflow.
B)  capital flight.
C)  trade deficit.
D)  trade surplus.E) A) and B)
F) None of the above

Question 20

Crowding out caused by government budget deficits will lead to

Accepted Answer

A)  an increase in the real exchange rate.
B)  a decrease in the real exchange rate.
C)  no change in the real exchange rate.
D)  a devaluation in a nation's currency.E) B) and D)
F) B) and C)

Exam 12: A Macroeconomic Theory of the Open Economy

Suppose that SA investors decide that investment opportunities in Western African countries have improved.What happens to SA net capital outflow? What happens to the SA real interest rate?

Correct AnswerverifiedSA net capital outflow will in...View AnswerShow Answer

If SA imposes a quota on the importing of clothing produced in China, so reducing SA imports of clothing, which of the following is true regarding SA net exports?

Correct AnswerverifiedShow Answer

Assuming all other things unchanged, a higher SA real interest rate

Correct AnswerverifiedShow Answer

Which of the following statement regarding the loanable funds market is true?

Correct AnswerverifiedShow Answer

If SA raises its tariff on imported sugar, domestic sugar growers will benefit, but the rand will appreciate and domestic producers of export goods will be harmed.

Correct AnswerverifiedShow Answer

Why do higher real interest rates lead to lower net capital outflow?

Correct AnswerverifiedHigher SA interest rates make SA assets ...View AnswerShow Answer

Net capital outflow is the purchase of domestic assets by foreigners minus the purchase of foreign assets by domestic residents.

Correct AnswerverifiedShow Answer

Which of the following statements regarding the market for foreign currency exchange is true?

Correct AnswerverifiedShow Answer

Crowding out caused by government budget deficits will lead to

Correct AnswerverifiedShow Answer

A country's net capital outflow is always equal to its net exports.

Correct AnswerverifiedShow Answer

Explain how an increase in the demand for capital goods in South Africa can lead to a change in the value of the rand against other currencies.

Correct AnswerverifiedAn increase in demand for capital goods ...View AnswerShow Answer

A country experiencing capital flight will experience a reduction in its net capital outflow and its net exports.

Correct AnswerverifiedShow Answer

The link between the loanable funds market and the foreign exchange market is

Correct AnswerverifiedShow Answer

Suppose that SA citizens start saving more.What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Correct AnswerverifiedThe supply of loanable funds increases, ...View AnswerShow Answer

A large and sudden movement of capital out of a country is called

Correct AnswerverifiedShow Answer

If a country's government wants to eliminate a trade deficit, its most effective policy would be to

Correct AnswerverifiedShow Answer

If a country's government increases its budget deficit, then the

Correct AnswerverifiedShow Answer

If SA raises its tariff on imported sugar, it will reduce imports and improve its trade balance.

Correct AnswerverifiedShow Answer

Which of the following statements about trade policy is true?

Correct AnswerverifiedShow Answer

Consider this diagram of the market for foreign currency exchange.If the US government decides to increase import tariffs on imported steel, we could expect the

Correct AnswerverifiedShow Answer

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SA net capital outflow will in...
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Higher SA interest rates make SA assets ...
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An increase in demand for capital goods ...
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The supply of loanable funds increases, ...
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