Question 1

If perfect capital mobility holds in a fixed exchange rate system,then can monetary or fiscal policy influence output? Explain.

Accepted Answer

Monetary policy is completely ineffective within a fixed exchange rate regime.Fiscal policy is highly effective within a fixed exchange rate regime.

Question 2

Assuming imperfect perfect capital mobility,the BP schedule is

Accepted Answer

A) vertical. 
B) horizontal. 
C) upward sloping. 
D) downward sloping. 
E) flat. 
A) vertical. 
B) horizontal. 
C) upward sloping. 
D) downward sloping. 
E) flat. C

Question 3

In an open economy,then what is depicted by the LM,IS,and BOP curves?

Accepted Answer

The LM curve shows the interest rate and income that represent equilibrium points for the money market.The IS curve consists of combinations of the interest rate and income that depict equilibrium points in the goods market.The BP curve shows the combinations of the interest rate and income that will equate supply and demand in the foreign exchange market for a given exchange rate.

Question 4

Assuming imperfect capital mobility and a fixed exchange rate,then an expansionary monetary policy

Accepted Answer

A) results in a balance of payments surplus without a conflict between domestic goals and external balance. 
B) results in a balance of payments deficit with a potential conflict between domestic goals and external balance. 
C) will shift the LM curve to the left. 
D) will have no effect on the balance of payments. 
A) results in a balance of payments surplus without a conflict between domestic goals and external balance. 
B) results in a balance of payments deficit with a potential conflict between domestic goals and external balance. 
C) will shift the LM curve to the left. 
D) will have no effect on the balance of payments.

Question 5

In the Mundell-Fleming model,regardless of whether the economy has perfect capital mobility or not,an increase in the money supply

Accepted Answer

A) reduces interest rates . 
B) increases income. 
C) decreases the trade balance. 
D) increases capital inflows. 
A) reduces interest rates . 
B) increases income. 
C) decreases the trade balance. 
D) increases capital inflows.

Question 6

The BP curve shifts to the left when:

Accepted Answer

A) the exchange rate falls. 
B) interest rates rise. 
C) income rises. 
D) imports increase. 
A) the exchange rate falls. 
B) interest rates rise. 
C) income rises. 
D) imports increase.

Question 7

(a)You are the economics advisor of Sweden,a country that is not a member of the European Union but trades quite a bit with EU countries and with whom there is a high degree of capital mobility.Suppose that the members of the European Union enact a large tax cut financed by a large increase in their deficit.What should happen to exchange rates in Sweden? What should happen to their trade balance?

Accepted Answer

As real interest rates rise in Europe as

Question 8

Under perfect capital mobility

Accepted Answer

A) there are no restrictions on buying financial assets,though there may be on buying factories and equipment. 
B) transactions costs have to be zero. 
C) differential risk in assets across countries are minimal. 
D) All of the above 
E) None of the above 
A) there are no restrictions on buying financial assets,though there may be on buying factories and equipment. 
B) transactions costs have to be zero. 
C) differential risk in assets across countries are minimal. 
D) All of the above 
E) None of the above

Question 9

Under what conditions is the balance of payments schedule in the open economy IS-LM model upward sloping? Horizontal?

Accepted Answer

The BP schedule is upward slop

Question 10

In the Mundell-Fleming model with a floating exchange rate and perfect capital mobility,an increase in the money supply does all of the following EXCEPT:

Accepted Answer

A) increase interest rates. 
B) increase income. 
C) increase the IS curve. 
D) increase inflation. 
A) increase interest rates. 
B) increase income. 
C) increase the IS curve. 
D) increase inflation.

Question 11

Under perfect capital mobility and flexible exchange rates,monetary policy works through the

Accepted Answer

A) interest rate. 
B) exchange rate. 
C) exports. 
D) Both b and c 
E) None of the above 
A) interest rate. 
B) exchange rate. 
C) exports. 
D) Both b and c 
E) None of the above

Question 12

Which of the following statements is (are)correct? The Mundell-Fleming model is

Accepted Answer

A) a new closed-economy model. 
B) implicitly assumes a fixed domestic price level. 
C) is an open-economy version of the IS-LM model. 
D) Both b and c 
A) a new closed-economy model. 
B) implicitly assumes a fixed domestic price level. 
C) is an open-economy version of the IS-LM model. 
D) Both b and c

Question 13

In an economy with perfect capital mobility,if domestic interest rates are above world interest rates then

Accepted Answer

A) capital outflows will drive domestic interest rates down. 
B) capital inflows will drive domestic interest rates down. 
C) current account deficits will drive domestic interest rates down. 
D) the central bank will have to intervene even if exchange rates are floating. 
A) capital outflows will drive domestic interest rates down. 
B) capital inflows will drive domestic interest rates down. 
C) current account deficits will drive domestic interest rates down. 
D) the central bank will have to intervene even if exchange rates are floating.

Question 14

Given the assumptions of perfect capital mobility and a fixed exchange rate system,discuss the effects of an increase in the money supply.Provide a graph of the open economy IS-LM model to illustrate.

Accepted Answer

An increase in the money supply shifts t

Question 15

The BP schedule will be steeper the

Accepted Answer

A) more responsive capital flows are to the interest rate. 
B) less responsive capital flows are to the interest rate. 
C) smaller the marginal propensity to import. 
D) less likely an expansionary fiscal policy will lead to a balance of payments deficit. 
A) more responsive capital flows are to the interest rate. 
B) less responsive capital flows are to the interest rate. 
C) smaller the marginal propensity to import. 
D) less likely an expansionary fiscal policy will lead to a balance of payments deficit.

Question 16

Within a fixed exchange rate system,the effect of an expansionary fiscal policy action on the balance of payments will be to

Accepted Answer

A) worsen the balance on the capital account but improve the trade balance. 
B) worsen the trade balance but improve the balance on the capital account. 
C) worsen both the trade balance and the balance on the capital account. 
D) improve both the trade balance and the balance on the capital account. 
A) worsen the balance on the capital account but improve the trade balance. 
B) worsen the trade balance but improve the balance on the capital account. 
C) worsen both the trade balance and the balance on the capital account. 
D) improve both the trade balance and the balance on the capital account.

Question 17

A rightward shift of the BP schedule is the result of a(n)

Accepted Answer

A) increase in the foreign interest rate. 
B) decrease in the foreign interest rate. 
C) exogenous fall in export demand. 
D) increase in import demand. 
A) increase in the foreign interest rate. 
B) decrease in the foreign interest rate. 
C) exogenous fall in export demand. 
D) increase in import demand.

Question 18

From the mid 1980s to the present,the United States

Accepted Answer

A) had only a small current account deficit. 
B) had a large capital account deficit,which in the balance of payments accounts was financed with a surplus in the current account,which in turn financed investment in excess of domestic saving. 
C) has had a large current account deficit,which in the balance of payments accounts was financed with a surplus in the capital account,that in turn financed investment in excess of domestic saving. 
D) None of the above 
A) had only a small current account deficit. 
B) had a large capital account deficit,which in the balance of payments accounts was financed with a surplus in the current account,which in turn financed investment in excess of domestic saving. 
C) has had a large current account deficit,which in the balance of payments accounts was financed with a surplus in the capital account,that in turn financed investment in excess of domestic saving. 
D) None of the above

Question 19

Assume perfect capital mobility.Under a fixed exchange rate system,expansionary fiscal policy causes income to _____,while under flexible exchange rates expansionary fiscal policy causes income to _____.

Accepted Answer

A) increase; increase 
B) increase; remain unchanged 
C) increase; decrease 
D) remain unchanged; increase 
A) increase; increase 
B) increase; remain unchanged 
C) increase; decrease 
D) remain unchanged; increase

Question 20

Empirically,there is a close positive relationship between domestic savings and investment.This is consistent with what we should expect to observe in

Accepted Answer

A) a closed economy. 
B) the Mundell-Flemming model with perfect capital mobility. 
C) the Mundell-Flemming model with perfect capital mobility and flexible exchange rates. 
D) the Mundell-Flemming model with perfect capital mobility and fixed exchange rates. 
E) none of the above. 
A) a closed economy. 
B) the Mundell-Flemming model with perfect capital mobility. 
C) the Mundell-Flemming model with perfect capital mobility and flexible exchange rates. 
D) the Mundell-Flemming model with perfect capital mobility and fixed exchange rates. 
E) none of the above.

If perfect capital mobility holds in a fixed exchange rate system,then can monetary or fiscal policy influence output? Explain.

Assuming imperfect perfect capital mobility,the BP schedule is

In an open economy,then what is depicted by the LM,IS,and BOP curves?

Assuming imperfect capital mobility and a fixed exchange rate,then an expansionary monetary policy

In the Mundell-Fleming model,regardless of whether the economy has perfect capital mobility or not,an increase in the money supply

The BP curve shifts to the left when:

Under perfect capital mobility

Under what conditions is the balance of payments schedule in the open economy IS-LM model upward sloping? Horizontal?

In the Mundell-Fleming model with a floating exchange rate and perfect capital mobility,an increase in the money supply does all of the following EXCEPT:

Under perfect capital mobility and flexible exchange rates,monetary policy works through the

Which of the following statements is (are)correct? The Mundell-Fleming model is

In an economy with perfect capital mobility,if domestic interest rates are above world interest rates then

Given the assumptions of perfect capital mobility and a fixed exchange rate system,discuss the effects of an increase in the money supply.Provide a graph of the open economy IS-LM model to illustrate.

The BP schedule will be steeper the

Within a fixed exchange rate system,the effect of an expansionary fiscal policy action on the balance of payments will be to

A rightward shift of the BP schedule is the result of a(n)

From the mid 1980s to the present,the United States

Assume perfect capital mobility.Under a fixed exchange rate system,expansionary fiscal policy causes income to _,while under flexible exchange rates expansionary fiscal policy causes income to _.

Empirically,there is a close positive relationship between domestic savings and investment.This is consistent with what we should expect to observe in

Introduction

Measurement of Macroeconomic Variables

Classical Macroeconomics I: Output and Employment

Classical Macroeconomics II: Money,prices,and Interest

Keynesian System I: the Role of Aggregate Demand

Keynesian System II: Money,interest,and Income

Keynesian System III: Policy Effects in the Is-Lm Model

Keynesian System Iv: Aggregate Supply and Demand

The Monetarist Counterrevolution

Output,inflation,and Unemployment: Alternative Views

New Classical Economics

Real Business Cycles and New Keynesian Economics

Macroeconomic Models:a Summary

Exchange Rates and the International Monetary System

Money,the Banking System,and Interest Rates

Optimal Monetary Policy

Fiscal Policy

Policies for Intermediate-Run Growth

Long-Run Economic Growth: Origins of the Wealth of Nations

Filters

Exam 15: Monetary and Fiscal Policy in the Open Economy

If perfect capital mobility holds in a fixed exchange rate system,then can monetary or fiscal policy influence output? Explain.

Assuming imperfect perfect capital mobility,the BP schedule is

In an open economy,then what is depicted by the LM,IS,and BOP curves?

Assuming imperfect capital mobility and a fixed exchange rate,then an expansionary monetary policy

In the Mundell-Fleming model,regardless of whether the economy has perfect capital mobility or not,an increase in the money supply

The BP curve shifts to the left when:

Under perfect capital mobility

Under what conditions is the balance of payments schedule in the open economy IS-LM model upward sloping? Horizontal?

In the Mundell-Fleming model with a floating exchange rate and perfect capital mobility,an increase in the money supply does all of the following EXCEPT:

Under perfect capital mobility and flexible exchange rates,monetary policy works through the

Which of the following statements is (are)correct? The Mundell-Fleming model is

In an economy with perfect capital mobility,if domestic interest rates are above world interest rates then

Given the assumptions of perfect capital mobility and a fixed exchange rate system,discuss the effects of an increase in the money supply.Provide a graph of the open economy IS-LM model to illustrate.

The BP schedule will be steeper the

Within a fixed exchange rate system,the effect of an expansionary fiscal policy action on the balance of payments will be to

A rightward shift of the BP schedule is the result of a(n)

From the mid 1980s to the present,the United States

Assume perfect capital mobility.Under a fixed exchange rate system,expansionary fiscal policy causes income to _____,while under flexible exchange rates expansionary fiscal policy causes income to _____.

Empirically,there is a close positive relationship between domestic savings and investment.This is consistent with what we should expect to observe in

Introduction

Measurement of Macroeconomic Variables

Classical Macroeconomics I: Output and Employment

Classical Macroeconomics II: Money,prices,and Interest

Keynesian System I: the Role of Aggregate Demand

Keynesian System II: Money,interest,and Income

Keynesian System III: Policy Effects in the Is-Lm Model

Keynesian System Iv: Aggregate Supply and Demand

The Monetarist Counterrevolution

Output,inflation,and Unemployment: Alternative Views

New Classical Economics

Real Business Cycles and New Keynesian Economics

Macroeconomic Models:a Summary

Exchange Rates and the International Monetary System

Money,the Banking System,and Interest Rates

Optimal Monetary Policy

Fiscal Policy

Policies for Intermediate-Run Growth

Long-Run Economic Growth: Origins of the Wealth of Nations

Filters

Assume perfect capital mobility.Under a fixed exchange rate system,expansionary fiscal policy causes income to _,while under flexible exchange rates expansionary fiscal policy causes income to _.