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Economics 101 Practice Test: Theory of the Open Economy
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The theory of the open economy is a theoretical economic situation that allows for the free flow of goods, services, money, and information. It involves the freedom to trade and exchange goods freely with other countries without restrictions, tariffs, and quotas.  An open economy is also known as a free economy. Some advantages of an open economy include: Consumer choice: Citizens have a larger variety of goods and services to choose from. Savings investment: Consumers can invest their savings outside the country.  Open economy macroeconomics is the study of an economy that deals with... Show more
Economics 101 Practice Test: Theory of the Open Economy
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25 Questions

1. Over the past decade, the United States has
2. Which of the following would be shown by shifting the supply of loanable funds right?
3. Refer to the figure shown. Suppose the Turkish economy starts at r0 and E0. If there is capital flight, the economy ends up at
4. Suppose that conservationists in Sherwood convince the government to prohibit the export of timber from Sherwood. According to the open-economy macroeconomic model this will
5. Between 1995 and 1998 Sweden decreased their budget deficit. This change shifted Sweden’s
6. When the supply of loanable funds shifts right, which of the following increases?
7. Which of the following will increase U.S. net foreign investment?
8. If U.S. firms decide to invest more domestically at each interest rate, the real interest rate in the U.S.
9. In the open-economy macroeconomic model, if the real exchange rate was above the equilibrium level, which of the following would rise?
10. Which of the following would increase both the real interest rate and the quantity of loanable funds?
11. Which of the following would increase the real exchange rate?
12. The restriction on imports of Japanese vehicles into the United States has:
13. Jack and Jill are co-owners of the U.S. firm Wells Petroleum. Jack builds an oil well in Texas. Jill builds an oil well in Venezuela.
14. An appreciation of the real exchange rate for the dollar
15. The variable that links the market for loanable funds and the foreign-currency exchange market is
16. The country of Monac experiences a coup that causes capital flight from the country. As a result
17. Suppose that the United States imposes an import quota on farm machinery. This shifts the
18. In the 1980s the U.S. budget deficit rose. At the same time the U.S. trade deficit grew larger, the real exchange rate of the dollar appreciated, and U.S. net foreign investment decreased. Which of these events is consistent with what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?
19. Between 1992 and 1999 it is estimated that Russia had capital flight of about $150 billion. Other things the same, we would expect that this capital flight has resulted in
20. Net foreign investment = net exports implies that
21. If people feel that it has become riskier to buy the capital assets of some country, perhaps because of increased political instability, then interest rates
22. Suppose sheep ranchers in Tiberius convince the government to prohibit the import of wool into Tiberius. According to the open-economy macroeconomic model this will cause the Tiberian currency to
23. In recent years the budget deficit of Thailand has increased. According to the open- economy macroeconomic model this should have caused which curve to shift right?
24. Which of the following raises interest rates and causes appreciation of the local currency?
25. If there is capital flight

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