According to the open-economy macroeconomic model, if the Canadian federal government were to reduce its budget deficit, both Canadian domestic investment and Canadian net capital outflow would fall.

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True

False

/ Ceteris paribus, when the real exchange rate of the CAD ($) appreciates, Canadian goods become more attractive to residents of Canada, but less attractive to residents of foreign countries.

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True

False

/If the real exchange rate of the CAD ($) were above its equilibrium level, the real exchange rate of the CAD ($) would appreciate.

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True

False

Financial capital tends to:

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flow toward countries with lower political risk.

ignore political risk and focus on returns.

flow toward countries with higher political risk.

ignore political risk in the current time frame.

/ If a government increases its budget deficit, then interest rates

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rise and the real exchange rate appreciates.

fall and the real exchange rate appreciates.

rise and the real exchange rate depreciates.

fall and the real exchange rate depreciates.

/ The key determinant of net capital outflow is the real exchange rate.

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True

False

/ According to the open-economy macroeconomic model, if Canada moved from a government budget deficit to a government budget surplus, Canadian real interest rates would increase and the real exchange rate of the CAD ($) would appreciate.

Select one:

True

False