Exam 25: Economic Policy in the Open Economy Under Fixed Exchange Rates

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In the Mundell analysis in which, in a situation of fixed exchange rates, a country is using monetary and fiscal policy to attain "external balance" (i.e., balance-of-payments equilibrium) and "internal balance" (i.e., full employment without inflation), the country . In this context, if the country has a balance-of-payments surplus at the same time that it has inflation, the country should engage in .

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Question 21

Under fixed exchange rates and a constant price level, the automatic adjustment process produces balance-of-payments equilibrium as

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Question 22

Since under a fixed exchange rate system the exchange rate does not change, does this mean that the BP curve never shifts? Why or why not? If it in fact does shift, what effects do such movements have on the equilibrium interest rate and equilibrium income if financial capital is imperfectly mobile? Briefly explain.

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Question 23

In the diagram below, under fixed exchange rates, the automatic adjustment mechanism will lead to

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Question 24

Fiscal policy is most effective in a fixed-rate system when capital is perfectly mobile because there is no domestic "crowding out." Explain what is meant by the term "crowding out," and then critically evaluate the previous statement using the IS/LM/BP model.

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Question 25

The use of expansionary or "easy" fiscal policy by a country's government in a situation of fixed exchange rates will, other things equal, initially lead to of the country's current account balance (or trade balance); if short-term financial capital is relatively mobile between countries (i.e., the BP curve is flatter than the LM curve), the policy initially of the country's capital/financial account balance.

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Question 26

In the IS-LM analysis (and ignoring the BP curve), if the economy is located at a point that is to the left (or below) the IS curve and also to the left (or above) the LM curve, there is pressure in the real sector of the economy as well as an excess money.

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Question 27

In the Mundell prescription for monetary and fiscal policy under fixed exchange rates, expansionary fiscal policy and contractionary monetary policy would be recommended if a country were faced with

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Question 28

Showing 21 - 28 of 28

Under fixed exchange rates and a constant price level, the automatic adjustment process produces balance-of-payments equilibrium as

In the diagram below, under fixed exchange rates, the automatic adjustment mechanism will lead to

Fiscal policy is most effective in a fixed-rate system when capital is perfectly mobile because there is no domestic "crowding out." Explain what is meant by the term "crowding out," and then critically evaluate the previous statement using the IS/LM/BP model.

In the IS-LM analysis (and ignoring the BP curve), if the economy is located at a point that is to the left (or below) the IS curve and also to the left (or above) the LM curve, there is pressure in the real sector of the economy as well as an excess money.

In the Mundell prescription for monetary and fiscal policy under fixed exchange rates, expansionary fiscal policy and contractionary monetary policy would be recommended if a country were faced with

Early Trade Theories: Mercantilism and the Transition to the Classical World of David Ricardo

The Classical World of David Ricardo and Comparative Advantage

Extensions and Tests of the Classical Model of Trade

Introduction to Neoclassical Trade Theory: Tools to Be Employed

Gains From Trade in Neoclassical Theory

Offer Curves and the Terms of Trade

The Basis for Trade: Factor Endowments and the Heckscher-Ohlin Model

Empirical Tests of the Factor Endowments Approach

Post Heckscher-Ohlin Theories of Trade and Intra-Industry Trade

Economic Growth and International Trade

International Factor Movements

The Instruments of Trade Policy

The Impact of Trade Policies

Arguments for Interventionist Trade Policies

Political Economy and Us Trade Policy

Economic Integration

International Trade and the Developing Countries

The Balance-Of-Payments Accounts

The Foreign Exchange Market

International Financial Markets and Instruments: an Introduction

The Monetary and Portfolio Balance Approaches to External Balance

Price Adjustments and Balance-Of-Payments Disequilibrium

National Income and the Current Account

Economic Policy in the Open Economy Under Flexible Exchange Rates

Prices and Output in the Open Economy: Aggregate Supply and Demand

Fixed or Flexible Exchange Rates

The International Monetary System: Past, Present, and Future

Filters

Exam 25: Economic Policy in the Open Economy Under Fixed Exchange Rates

Under fixed exchange rates and a constant price level, the automatic adjustment process produces balance-of-payments equilibrium as

In the diagram below, under fixed exchange rates, the automatic adjustment mechanism will lead to

Fiscal policy is most effective in a fixed-rate system when capital is perfectly mobile because there is no domestic "crowding out." Explain what is meant by the term "crowding out," and then critically evaluate the previous statement using the IS/LM/BP model.

In the IS-LM analysis (and ignoring the BP curve), if the economy is located at a point that is to the left (or below) the IS curve and also to the left (or above) the LM curve, there is __________ pressure in the real sector of the economy as well as an excess __________ money.

In the Mundell prescription for monetary and fiscal policy under fixed exchange rates, expansionary fiscal policy and contractionary monetary policy would be recommended if a country were faced with

Early Trade Theories: Mercantilism and the Transition to the Classical World of David Ricardo

The Classical World of David Ricardo and Comparative Advantage

Extensions and Tests of the Classical Model of Trade

Introduction to Neoclassical Trade Theory: Tools to Be Employed

Gains From Trade in Neoclassical Theory

Offer Curves and the Terms of Trade

The Basis for Trade: Factor Endowments and the Heckscher-Ohlin Model

Empirical Tests of the Factor Endowments Approach

Post Heckscher-Ohlin Theories of Trade and Intra-Industry Trade

Economic Growth and International Trade

International Factor Movements

The Instruments of Trade Policy

The Impact of Trade Policies

Arguments for Interventionist Trade Policies

Political Economy and Us Trade Policy

Economic Integration

International Trade and the Developing Countries

The Balance-Of-Payments Accounts

The Foreign Exchange Market

International Financial Markets and Instruments: an Introduction

The Monetary and Portfolio Balance Approaches to External Balance

Price Adjustments and Balance-Of-Payments Disequilibrium

National Income and the Current Account

Economic Policy in the Open Economy Under Flexible Exchange Rates

Prices and Output in the Open Economy: Aggregate Supply and Demand

Fixed or Flexible Exchange Rates

The International Monetary System: Past, Present, and Future

Filters

In the IS-LM analysis (and ignoring the BP curve), if the economy is located at a point that is to the left (or below) the IS curve and also to the left (or above) the LM curve, there is pressure in the real sector of the economy as well as an excess money.