Question

1. Which of the following best describes the effects of an increase in real interest rates in Canada?

a.	It discourages both Canadian and foreign residents from buying Canadian assets.
b.	It encourages both Canadian and foreign residents to buy Canadian assets.
c.	It encourages Canadian residents to buy Canadian assets, but discourages foreign residents from buying Canadian assets.
d.	It encourages foreign residents to buy Canadian assets, but discourages Canadian residents from buying Canadian assets.

____     2.   Which of the following is consistent with a depreciation of the dollar?

a.	Canadian goods become less expensive relative to foreign goods, which makes exports rise and imports fall.
b.	Canadian goods become less expensive relative to foreign goods, which makes exports fall and imports rise.
c.	Canadian goods become more expensive relative to foreign goods, which makes exports rise and imports fall.
d.	Canadian goods become more expensive relative to foreign goods, which makes exports fall and imports rise.

____     3.   What is the variable that links the loanable funds market and the foreign-currency exchange market?

a.	net capital outflow
b.	national saving
c.	exports
d.	imports

____     4.   How does the supply or demand for loanable funds shift when a country increases its budget deficit?

a.	The supply of loanable funds shifts right.
b.	The supply of loanable funds shifts left.
c.	The demand for loanable funds shifts right.
d.	The demand for loanable funds shifts left.

____     5.   Suppose that Chile has a budget surplus, and then goes into deficit. Which of the following best predicts the consequences?

a.	National saving would increase, and Chile’s supply of loanable funds would shift to the left.
b.	National saving would increase, and Chile’s demand for loanable funds would shift to the right.
c.	National saving would decrease, and Chile’s supply of loanable funds would shift to the left.
d.	National saving would decrease, and Chile’s demand for loanable funds would shift to the right.

6. If the government of Colombia implemented a policy that reduced national saving, which of the following best predicts the consequences?

a.	Its real exchange rate would depreciate, and Colombian net exports would rise.
b.	Its real exchange rate would depreciate, and Colombian net exports would fall.
c.	Its real exchange rate would appreciate, and Colombian net exports would rise.
d.	Its real exchange rate would appreciate, and Colombian net exports would fall.

____     7.   If a government increases its budget deficit, which of the following best describes the consequences?

a.	Interest rates and domestic investment rise.
b.	Interest rates and domestic investment fall.
c.	Interest rates rise, and domestic investment falls.
d.	Interest rates fall, and domestic investment rises.

____     8.   If a government increases its budget deficit, which of the following best predicts the effects?

a.	The real exchange rate appreciates, and the trade balance moves toward surplus.
b.	The real exchange rate appreciates, and the trade balance moves toward deficit.
c.	The real exchange rate depreciates, and the trade balance moves toward surplus.
d.	The real exchange rate depreciates, and the trade balance moves toward deficit.

Figure 13-2

Answer 1

Ans1) the correct option is b. It encourages both Canadian and foreign residents to buy Canadian assets

ans2) the correct option is a) Canadian goods become less expensive relative to foreign goods, which makes exports rise and imports fall.

ans3) the correct iption is a) net capital outflow

ans4) the correct option is b) The supply of loanable funds shifts left

ans5) the correct option is c) National saving would decrease, and Chile’s supply of loanable funds would shift to the left.