ch05-practice - Practice Questions on Chapter 5 The Open...

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Practice Questions on Chapter 5: The Open Economy Assume that all questions are about the long run. Name: __________________________ Date: _____________ 1.An “open” economy is one in which: A) the level of output is fixed. B) government spending exceeds revenues. C) the national interest rate equals the world interest rate. D) there is trade in goods and services with the rest of the world. 2.The value of net exports is also the value of: 3.If domestic investment ( I ) exceeds domestic saving ( S ), then the extra investment will be financed by: 4.If domestic saving exceeds domestic investment, then the extra saving will be used to: 5.The world real interest rate ( r * ): A) is defined as the domestic real interest rate. B) makes domestic saving equal to domestic investment. C) is the interest rate charged on loans by the World Bank. D) is defined as the real interest rate prevailing in world financial markets. 6.In a country with a "small open economy", the real interest rate will always be: Page 1
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Use the following to answer questions 7-8: Exhibit: Saving and Investment in a Small Open Economy 7.(Exhibit: Saving and Investment in a Small Open Economy) In a small open economy, if the world interest rate is r 1 , then the economy has: 8.(Exhibit: Saving and Investment in a Small Open Economy) In a small open economy, if the world interest rate is r 3 , then the economy has: Page 2
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9.An increase in the trade deficit of a small open economy could be the result of: A) an increase in taxes. B) an increase in government spending. C) a decrease in the world interest rate. D) the expiration of an investment tax-credit provision. 10.An increase in the trade surplus of a small open economy could be the result of:
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