Econ-201 Macroeconomic Theory

Front 1

A large and sudden reduction in the demand for assets located in a country:

Back 1

capital flight

Front 2

In an open economy, the source of supply of loans in the loanable funds market is ________, and the source of demand is ________.

Back 2

National Saving, Investment and Net Capital Outflow

Front 3

If American goods become more popular both at home and abroad, the real exchange rate will ________, and Net Exports will ________.

Back 3

appreciate, remain unchanged

Front 4

A government policy that directly influences the quantity of goods and services that a country imports or exports:

Back 4

trade policy

Front 5

If Net Capital Outflow increases, the ________ of loans will increase, causing the real domestic interest rate to ________.

Back 5

demand, rise

Front 6

If the government imposes hefty taxes on imports (tariffs), imports will decrease, causing the real exchange rate to ________ exports, so that overall, Net Exports ________.

Back 6

appreciate and so reduce, don't change at all

Front 7

If the Net Capital Outflow increases, the ________ of dollars in the Foreign Currency Exchange Market will increase, causing the real exchange rate to ________.

Back 7

supply, depreciate

Front 8

In the Foreign Currency Exchange Market, the supply of dollars comes from ________, and the demand for dollars comes from ________.

Back 8

Net Capital Outflow, Net Exports

Front 9

If the Federal government budget deficit increases, the real interest rate will ________, causing Net Capital Outflow and Net Exports to ________.

Back 9

increase, decrease

Front 10

If an economic crisis were to occur in the U.S., domestic interest rates would ________, the real exchange rate would ________, and Net Exports would ________.

Back 10

rise, depreciate, increase

Front 11

If American goods become more popular both at home and abroad, the ________ of dollars in the Foreign Currency Exchange Market will increase, causing the real exchange rate to ________.

Back 11

demand, appreciate

Front 12

Where does the supply of loanable funds come from?

Where does the demand for loanable funds come from?

Back 12

SUPPLY: national saving
DEMAND: domestic investment and net capital outflow

Front 13

____ ____ do not affect the trade balance.

Back 13

Trade policies

Front 14

The two sides of the foreign-currency exchange market are represented by ____ and ____.

Back 14

NCO, NX

Front 15

What is the key determinant of net capital outflow?

Back 15

The real interest rate

Front 16

What is the effect of capital flight on a country’s interest rate and exchange rate?

Back 16

Capital flight causes the interest rate to INCREASE and the exchange rate to DEPRECIATE.

Front 17

The price that balances the supply and demand for foreign-currency:

Back 17

The real exchange rate

Front 18

What are the 4 key macroeconomic variables in an open economy?

Back 18

1) net exports
2) net foreign investment
3) nominal exchange rates
4) real exchange rates

Front 19

What don’t trade policies affect the trade balance?

Back 19

Because they do not change national saving or domestic investment.

Front 20

What adjusts to balance the supply and demand for dollars in the market for foreign-currency exchange?

Back 20

The real exchange rate

Front 21

A limit on the quantity of a good produced abroad and sold domestically:

Back 21

Import quota

Front 22

Where does the supply of dollars in the market for foreign exchange come from?

Where does the demand for dollars in the market for foreign exchange come from?

Back 22

SUPPLY: net capital outflow
DEMAND: net exports

Front 23

What links the market for loanable funds and the market for foreign-currency exchange?

Back 23

Net capital outflow

Front 24

Trade policies do not affect the ____ ____.

Back 24

trade balance

Front 25

The real interest rate is the key determinant of:

Back 25

Net capital outflow

Front 26

A large and sudden movement of funds out of a country:

Back 26

Capital flight

Front 27

The supply and demand for loanable funds depend on:

Back 27

The real interest rate

Front 28

The magnitude and variation in important macroeconomic variables depend on what 3 factors?

Back 28

1) Government budget deficits
2) Trade policies
3) Political and economic stability

Front 29

A tax on an imported good:

Back 29

Tariff

Front 30

Trade policies have a greater effect on ____ ____ than on ____ ____.

Back 30

Microeconomic markets, macroeconomic markets

Front 31

The rising U.S. budget deficits of the early 1980s helped contribute to:

Back 31

The crowding out of domestic investment.

Front 32

Suppose the budget deficit of a nation decreases. What will result?

Back 32

The supply of loanable funds will increase.

Front 33

Suppose a nation's net exports fall. This will be accompanied by:

Back 33

A decrease in net foreign investment.

Front 34

In the market for foreign-currency exchange, why is the demand curve downward sloping?

Back 34

Because a decline in the real exchange rate makes everything purchased in America cheaper to foreign buyers.

Front 35

Interest rates will increase in a country that experiences ____.

Back 35

capital flight

Front 36

What effect will there be on the exchange rate if the U.S. imposes an import quota on Japanese cars?

Back 36

The exchange rate will increase.

Front 37

What must be in simultaneous equilibrium for an open economy to be in macroeconomic equilibrium?

Back 37

The foreign currency exchange market and the market for loanable funds.

Front 38

What is most likely to cause a rise in net capital outflow?

Back 38

A reduction in the U.S. government deficit

Front 39

Suppose real interest rates decline sharply in the United States. What 2 things will result?

Back 39

1) the supply of dollars will increase

2) the U.S. dollar will depreciate

Front 40

Where do the actions of borrowers and lenders take place?

Back 40

In the market for loanable funds.

Front 41

What resulted from the large government deficits of the 1980s?

Back 41

Public saving in the U.S. fell and net capital outflow fell.

Front 42

Which of the following statements is correct?

a. A government budget deficit increases the supply of loanable funds, increases the interest rate, and increases investment.

b. A government budget deficit decreases the supply of loanable funds, decreases the interest rate, and crowds out investment.

c. A government budget deficit decreases the supply of loanable funds, increases the interest rate, and crowds out investment.

d. A government budget deficit decreases the supply of loanable funds, increases the interest rate, and increases investment.

Back 42

c. A government budget deficit decreases the supply of loanable funds, increases the interest rate, and crowds out investment.

Front 43

In the market for foreign-currency exchange, why is the supply curve of dollars vertical?

Back 43

Because it is affected only by the real interest rate.

Front 44

What is determined by the intersection of the demand for loanable funds with the supply of loanable funds?

Back 44

interest rates

Front 45

The sum of domestic investment and net capital outflow:

Back 45

The supply of loanable funds

Front 46

The country of Monac experiences a coup that causes capital flight from the country. What happens as a result?

Back 46

The demand for loanable funds in Monac will increase.

Front 47

The effect has the restriction on imports of Japanese vehicles into the United States had?

Back 47

It has caused the real exchange rate to appreciate.

Front 48

Suppose domestic investment in the U.S. falls while net capital outflow is unchanged. What effect is there on national saving?

Back 48

National saving will decrease.

Front 49

The government of France bans all imports of British cattle. What will happen as a result?

Back 49

The demand for French francs will increase.

Front 50

What will happen if people decide that Mexico is a risky place to keep their savings?

Back 50

Mexico's net capital outflow will increase.

Front 51

When the U.S. government runs a budget deficit, this action creates:

Back 51

An increase in the real exchange rate of the dollar.

Front 52

Presently, the U.S. is a net debtor in international markets. What do this mean?

Back 52

This means that foreigners own more real and financial assets here than Americans own abroad.

Front 53

An increase in budget deficits will increase the ____ ____.

Back 53

trade deficit

Front 54

In an open economy, what is used to explain why the U.S. economy experiences trade deficits?

Back 54

The market for loanable funds

Front 55

What would most likely to cause the Hong Kong dollar to appreciate on the foreign-currency exchange market?

Back 55

Higher budget deficits in Hong Kong.

Front 56

Which of the following is correct?

a. The U.S. economy is more globally integrated now than 20 years ago.

b. Economies are becoming more self-sufficient and less outward-looking to trading partners, because of the many barriers to free trade.

c. The size of the foreign sector in the U.S., relative to the overall economy, is diminishing.

d. In the past decade, the U.S. economy has persistently exported more goods than it imported.

Back 56

a. The U.S. economy is more globally integrated now than 20 years ago.

Front 57

What happens to interest rates and domestic investment if a government increases its budget deficit?

Back 57

Interest rates rise and domestic investment falls.

Front 58

What effect was there on Mexico's net exports and net capital outflow when it suffered from capital flight in 1994?

Back 58

Mexico's net capital outflow
and net exports INCREASED.

Front 59

What happens to the dollar when the US interest rate increases?

Back 59

Higher interest rates in the US cause NCO to fall - therefore, the supply of dollars in the foreign exchange market falls. As the real exchange rate rises, the dollar APPRECIATES.

Front 60

What happens to NCO if a country has balanced trade?

Back 60

NCO=0

Front 61

What has the US economy been experiencing since the 1980's?

Back 61

The US has been running a trade deficit since the 1980's. Part of the explanation for this is the federal budget deficit, which caused the dollar to appreciate, making imports cheaper and our exports more expensive.

Front 62

When the US real interest rate rises, domestic assets become _____ attractive to foreigners and foreign assets become _____ attractive to domestic residents.

Back 62

more, less

The higher interest paid within the US makes US assets more attractive relative to foreign assets, explaining why the higher real interest rate will decrease purchases of foreign assets by domestic residents and increase purchases of domestic assets by foreigners (both of which reduce NCO).

Front 63

An increase in __________ will cause net capital outflow to fall.

Back 63

The real interest rate

(NCO is inversely related to the real interest rate)

Front 64

The equilibrium in an open economy requires a simultaneous equilibrium in which 2 markets?

Back 64

The equilibrium in the open economy determines the real interest rate (MARKET FOR LOANABLE FUNDS) and the real exchange rate (FOREIGN CURRENCY EXCHANGE MARKET).

Front 65

What is the effect on imports and exports if net capital outflow is negative?

Back 65

If net foreign investment is negative, net exports must also be negative - therefore, IMPORTS MUST EXCEED EXPORTS.

Front 66

Which of the following is most likely to increase U.S. exports?
a. The govt. gives subsidies to U.S. firms that export goods or services.
b. The govt. reduces the size of the budget surplus.
c. The US reduces its restrictions on foreign imports.
d. Taxes on domestic saving rise.

Back 66

c. The US reduces its restrictions on foreign imports.

Front 67

Why is the demand curve in the market for foreign-currency exchange downward sloping?

Back 67

B/c a higher exchange rate makes domestic goods more expensive.