Chapter 13 : A Macroeconomic Theory of the Small Open Economy

Question 1

A change in National Saving generates the same results, regardless of whether the change was from private saving or public saving.

Answer 1

A change in National Saving generates the same results, regardless of whether the change was from private saving or public saving.

Question 2

An increase in a Government budget deficit causes a reduction in the public saving component of national saving that shifts the supply of loanable funds to the…..

Answer 2

An increase in a Government budget deficit causes a reduction in the public saving component of national saving that shifts the supply of loanable funds to the…..LEFT.

Question 3

A reduction in the private saving component of national saving would shift the supply of loanable funds to the……

Answer 3

A reduction in the private saving component of national saving would shift the supply of loanable funds to the……LEFT

Question 4

Net Capital Outflow (NCO) = National Saving (S) - Domestic investment (I)

NCO = NX (net Export)

NCO is the purchase of foreign assets by domestic resident minus the purchase of domestic assets by foreign resident.

Answer 4

Net Capital Outflow (NCO) = National Saving (S) - Domestic investment (I)

NCO = NX (net Export)

NCO is the purchase of foreign assets by domestic resident minus the purchase of domestic assets by foreign resident.

Question 5

The quantity of NCO (Net Capital Outflow) is always directly measurable as the supply of dollars in the market for foreign currency exchange.

Answer 5

The quantity of NCO (Net Capital Outflow) is always directly measurable as the supply of dollars in the market for foreign currency exchange.

Question 6

Other things being the same, an increase in the world real interest rate increases net capital outflow for a small open economy.

Answer 6

Other things being the same, an increase in the world real interest rate increases net capital outflow for a small open economy.

Question 7

An Increase in Canadian NCO increases the supply of dollars in the market for foreign currency exchange and decreases the real exchange rate of the dollar.

Answer 7

An Increase in Canadian NCO increases the supply of dollars in the market for foreign currency exchange and decreases the real exchange rate of the dollar.

Question 8

True of False:

If labour unions convince Canadians to “buy Canadians” it will improve the Canadian Trade Balance

Answer 8

Answer : False

(NX) net exports are unchanged because NCO is unchanged