Chapter 13 - Macroecon. Theory of Open Economy Flashcards Preview

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Flashcards in Chapter 13 - Macroecon. Theory of Open Economy Deck (20):
1

Saving is positive on real inflation rates (r) (t/f)

true

2

Domestic investment (I) is positive w/ real inflation rates (r) (t/f)

false - it is negative

3

A fall in "r" shows that the assets are more attractive (t/f)

false - they are less attractive after a fall in "r"

4

Q of LF by Canadian saving = Q of LF for domestic investment (t/f)

false - they are not equal b/c differ at NCO.

5

Market for foreign currency exchange exists b/c...

ppl want to be paid in own currency

6

NX =

Demand for $ - foreign need to buy Can exports

7

NCO =

S for $ - Can sell money to get foreign currency to buy imports

8

Real exchange rate...

balances S+D in market for foreign currency exchange

9

D curve (f-c exch) is...

down slope b/c higher exchange rate makes exports more expensive.

10

S curve (f-c exch) is...

vertical b/c Q of money supplied for NCO d/n relate to real inflation rate.

11

if a Canadian buys import, does it affect S or D?

Demand for dollar decreases - incr in import reduces NX (as shown b/f NX=D for $)

12

if foreigner buys Canadian asset, does it affect S or D?

S of Money falls - reduces NCO (as shown b/f NCO=S of $)

13

Budget Deficit Effects... (5)

1. national saving falls; 2. real inflation rate rises; 3. domestic investment and NCO fall; 4. real exchange rate appreciates;
5. NX falls

14

NCO links both markets (t/f)
-LF market + f-c exchange market
-which formulas show this

true
-NCO = NX and S = I + NCO

15

If there is an increase in world inflation rates...

crowd out domestic investment ($ depreciates + NX rises)

16

If there is a gov't deficit...

negative saving - reduces S of LF, NCO + $ in f-c exchange market

17

tariff is...

a tax on imported Goods

18

import quota is...
-effect is...

limit Q of a Good imported + sold.
-causes incr in D for $ in f-c exchange market (appr of real exchange rate)
-has no effect on trade balance

19

Capital Flight is...
-higher impact if _____ which is_____

sudden reduction in D for assets in a country.
-higher impact if capital fleeing (f investors leave too)

20

If investors are concerned + capital flight + fleeing occur...

capital leaves economy quickly, inflation rates increase + dollar depreciates.