hw ch 6.2

Question 1

In a large open economy, an investment tax credit raises the real interest rate, ______ the trade balance, and ______ net capital outflow.

Answer 1

decreases; decreases

Question 2

The nominal exchange rate between the U.S. dollar and the Japanese yen is the:

Answer 2

number of yen you can get for one dollar.

Question 3

Assume that a war breaks out abroad, and foreign investors choose to invest more in a large safe country, the United States. Then, the U.S. real interest rate:

Answer 3

and net exports will both fall.

Question 4

In a large open economy, the exchange rate adjusts so that net exports equal:

Answer 4

net capital outflow

Question 5

In a large open economy, the real interest rate is determined by

Answer 5

national saving, the domestic investment function, and the net capital outflow function.

Question 6

(Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of an increase in investment demand?

Answer 6

c

Question 7

In a large but open economy, when a fiscal expansion takes place, the interest rate goes up and some investment is crowded out; the expansion also causes a trade:

Answer 7

deficit and a rise in the real exchange rate.

Question 8

Net capital outflow in a large country:

Answer 8

declines as the domestic interest rate rises.