ECON 1000 Lecture Notes - Lecture 13: Macroeconomics, Trade Restriction, Risk Premium

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29 Jul 2015

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Trade policy- a government policy that directly influences the quantity of goods and services that a country imports or exports. Tariff- a tax on goods produced abroad and sold domestically. Import quota- a limit on the quantity of a good that is produced abroad and sold domestically. Capital flight- a large and sudden reduction in the demand for assets located in a country. There are two markets that will affect the supply and demand of loanable funds; the market for loanable funds and the market for foreign exchange. S= i+nco emphasizes that in an open economy the amount that a nation saves does not have to equal the amount it spends to purchase domestic capital. If national saving is insufficient to finance the purchase of domestic capital, the shortfall can be met by the savings from foreigners in this case nco is negative.

Related Questions

In the market for foreign-currency exchange in the open-economy macroeconomic model, which of the following does the amount of net capital outflow represent?
a.
the quantity of dollars supplied for the purpose of selling assets domestically
b.
the quantity of dollars supplied for the purpose of buying assets abroad
c.
the quantity of dollars demanded for the purpose of buying Canadian net exports of goods and services
d.
the quantity of dollars demanded for the purpose of importing foreign goods and services

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Since the United States has negative net foreignâ investment, its

A. net capital flow must be negative.

B. domestic saving must be less than its domestic investment.

C. exports must be greater than its imports.

D. domestic investment must be less than its domestic saving.

Expansionary fiscal policy is less effective in an open economy because

A. increases in the money supply will reduce interest rates and lower the value of theâ dollar, reducing aggregate demand.

B. increases in government spending can increase interestâ rates, which increases the value of the dollar and crowds out net exports.

C. increases in government spending will be partly spent on importedâ goods, which do not benefit the domestic economy.

D. increases in taxes reduceâ consumption, which in turn reduces consumption of imports and increases net exports.

When the Federal reserve uses contractionary monetary policy to reduceâ inflation, it

A. sells treasury securities increasing interestâ rates, leading to a stronger dollar that lowers net exports in an open economy.

B. buys treasury securities decreasing interestâ rates, leading to a weaker dollar that lowers consumption of durables in a closed economy.

C. sells treasury securities decreasing interestâ rates, leading to a stronger dollar that lowers domestic investment in a closed economy.

D. buys treasury securities increasing interestâ rates, leading to a weaker dollar that increases net exports in an open economy.

If a country saves more than it investsâ domestically, then its net foreign investment must be (positive, negative, or zero)?

ECON 1000 Lecture Notes - Lecture 13: Macroeconomics, Trade Restriction, Risk Premium

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