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  2. Macroeconomics
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Open Economy: International Trade and Finance

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MacroeconomicsAP
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MacroeconomicsAP
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Question 3
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MacroeconomicsAP
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Question 4
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MacroeconomicsAP
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MacroeconomicsAP
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MacroeconomicsAP
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Question 8
1 mark
MacroeconomicsAP
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Question 9
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MacroeconomicsAP
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Question 10
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MacroeconomicsAP
1 mark

Which of the following best describes inbound capital flow?

Money going out of a country for investment purposes.

Foreign investors purchasing domestic assets.

Domestic investors purchasing foreign assets.

Money used for only trade across borders.

How does outbound capital flow typically affect the domestic loanable funds market?

It increases the supply of loanable funds.

It decreases the supply of loanable funds.

It increases the demand for loanable funds.

It decreases the demand for loanable funds.

Suppose real interest rates in the United States rise significantly relative to those in Europe. What is the likely effect on capital flows and the demand for the U.S. dollar?

Capital will flow out of the U.S., decreasing demand for the U.S. dollar.

Capital will flow into the U.S., increasing demand for the U.S. dollar.

Capital flows will be unaffected, and the demand for the U.S. dollar will remain constant.

Capital will flow out of the U.S. and into Europe, increasing demand for the Euro.

What is the primary reason for outbound capital flow?

Higher real interest rates in the domestic country.

Lower real interest rates in the foreign country.

Lower real interest rates in the domestic country.

Increased political stability in the domestic country.

How does an inflow of capital affect the foreign exchange market?

It decreases the demand for the domestic currency.

It increases the supply of the domestic currency.

It increases the demand for the domestic currency.

It has no effect on the foreign exchange market.

What is the primary reason for inbound capital flow?

Lower real interest rates in the domestic country.

Higher real interest rates in the domestic country.

Political instability in foreign countries.

Decreased investment opportunities domestically.

Which of the following is most likely to occur in the domestic currency market as a result of inbound capital flow?

A decrease in demand for the domestic currency.

An increase in the supply of the domestic currency.

An increase in demand for the domestic currency.

No change in the demand or supply of the domestic currency.

What is the relationship between real interest rates and capital flows?

High real interest rates lead to outbound capital flow.

Low real interest rates have no effect on capital flow.

High real interest rates lead to inbound capital flow.

Real interest rates are not related to capital flows.

Consider a scenario where a country's central bank implements a policy that leads to a significant capital outflow. Using a graph of the foreign exchange market for this country's currency, what would you expect to see?

A rightward shift in the demand curve for the currency, leading to appreciation.

A leftward shift in the demand curve for the currency, leading to depreciation.

A rightward shift in the supply curve for the currency, leading to appreciation.

A leftward shift in the supply curve for the currency, leading to depreciation.

Assume that the real interest rate in the United Kingdom is 2% while the real interest rate in Japan is 5%. According to the principles of international capital flows, which of the following is most likely to occur?

Capital will flow from Japan to the United Kingdom, appreciating the British pound.

Capital will flow from the United Kingdom to Japan, appreciating the Japanese yen.

The Japanese yen will depreciate due to decreased demand.

There will be no significant capital flow between the two countries.