Question 1

Under perfect capital mobility,fiscal policy has the largest impact on the income under:

Accepted Answer

A) fixed exchange rates. 
B) floating exchange rates. 
C) dollarization. 
D) a currency union. 
A) fixed exchange rates. 
B) floating exchange rates. 
C) dollarization. 
D) a currency union.

Question 2

A depreciation of the dollar under perfect capital mobility would cause

Accepted Answer

A) the LM curve to shift to the left. 
B) the LM curve to shift to the right. 
C) the IS curve to shift to the right. 
D) the IS curve to shift to the left. 
E) the BP curve to shift up. 
A) the LM curve to shift to the left. 
B) the LM curve to shift to the right. 
C) the IS curve to shift to the right. 
D) the IS curve to shift to the left. 
E) the BP curve to shift up.

Question 3

In an open economy,there should be a

Accepted Answer

A) close positive relationship between investment and savings. 
B) a close positive relationship between trade deficits and investment. 
C) a negative relationship between trade deficits and savings. 
D) a positive relationship between a country's savings rate and higher domestic interest rates. 
A) close positive relationship between investment and savings. 
B) a close positive relationship between trade deficits and investment. 
C) a negative relationship between trade deficits and savings. 
D) a positive relationship between a country's savings rate and higher domestic interest rates.

Question 4

Under perfect capital mobility,monetary policy has the largest impact on the income under:

Accepted Answer

A) floating exchange rates. 
B) fixed exchange rates. 
C) dollarization. 
D) a currency union. 
A) floating exchange rates. 
B) fixed exchange rates. 
C) dollarization. 
D) a currency union.

Question 5

Under perfect capital mobility and a floating exchange rate system,expansionary fiscal policy leads to

Accepted Answer

A) an increase in income and the interest rate. 
B) no change in the interest rate and a fall in the trade balance. 
C) no change in the interest rate and a decrease in income. 
D) an increase in interest rates and a fall in the trade balance. 
E) no change in interest rates and the exchange rate. 
A) an increase in income and the interest rate. 
B) no change in the interest rate and a fall in the trade balance. 
C) no change in the interest rate and a decrease in income. 
D) an increase in interest rates and a fall in the trade balance. 
E) no change in interest rates and the exchange rate.

Question 6

An exogenous increase in the country's trade balance shifts the

Accepted Answer

A) IS schedule to the left. 
B) IS schedule to the right. 
C) LM schedule to the left. 
D) LM schedule to the right. 
A) IS schedule to the left. 
B) IS schedule to the right. 
C) LM schedule to the left. 
D) LM schedule to the right.

Question 7

In the Mundell-Fleming model with a floating exchange rate and perfect capital mobility,expansionary fiscal policy 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 8

Assuming perfect 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.

Question 9

Dollarization by a foreign country is another form of:

Accepted Answer

A) balancing a country's current account. 
B) maintaining monetary policy independence. 
C) fixing an exchange rate. 
D) maintaining a balanced government budget. 
A) balancing a country's current account. 
B) maintaining monetary policy independence. 
C) fixing an exchange rate. 
D) maintaining a balanced government budget.

Question 10

In the Mundell-Fleming model,all of the following are true EXCEPT:

Accepted Answer

A) the intersection of the IS and LM curves determine the equilibrium exchange rate. 
B) the BP curves position is determined by the exchange rate. 
C) the policy choice between fixed and floating exchange rates shifts the BP curve. 
D) the extent of capital mobility determines the slope of the BP curve. 
E) all of the above are true. 
A) the intersection of the IS and LM curves determine the equilibrium exchange rate. 
B) the BP curves position is determined by the exchange rate. 
C) the policy choice between fixed and floating exchange rates shifts the BP curve. 
D) the extent of capital mobility determines the slope of the BP curve. 
E) all of the above are true.

Question 11

Suppose that the US and Europe maintain a fixed exchange rate between themselves.If inflation in the US is 3% and in Europe it is 1%,what would happen to the trade balances between these two countries? Could these countries maintain their fixed exchange rates forever? Why or why not?

Accepted Answer

As long as the fixed exchange rate holds

Question 12

Under perfect capital mobility,what would occur if the interest rate on dollar-denominated bonds amounts to 6.1 percent and the interest rate on euro-denominated bonds adjusted for changes in the exchange rate is expected to be 5.0 percent? Explain.

Accepted Answer

In the case of perfect capital

Question 13

According to the balance of payments schedule,as the level of income rises

Accepted Answer

A) import demand increases while export demand does not. 
B) export demand increases while import demand decreases. 
C) both import demand and export demand increase. 
D) both import demand and export demand decrease. 
A) import demand increases while export demand does not. 
B) export demand increases while import demand decreases. 
C) both import demand and export demand increase. 
D) both import demand and export demand decrease.

Question 14

Assuming perfect capital mobility and a fixed exchange rate,then an increase in government spending shifts

Accepted Answer

A) the IS schedule only. 
B) both the IS and LM schedules to the left. 
C) both the IS and LM schedules to the right. 
D) the LM schedule to the left and the IS schedule to the right. 
A) the IS schedule only. 
B) both the IS and LM schedules to the left. 
C) both the IS and LM schedules to the right. 
D) the LM schedule to the left and the IS schedule to the right.

Question 15

Which of the following statements is (are)correct? According to the Feldstein-Horioka Saving Investment Puzzle

Accepted Answer

A) countries with relatively low saving to income ratios have relatively high investment to income ratios. 
B) there is no correlation between investment and saving in developed countries. 
C) countries with a high ratio of saving to income have high ratios of investment to income. 
D) Both a and b 
A) countries with relatively low saving to income ratios have relatively high investment to income ratios. 
B) there is no correlation between investment and saving in developed countries. 
C) countries with a high ratio of saving to income have high ratios of investment to income. 
D) Both a and b

Question 16

Assuming perfect capital mobility and flexible exchange rates,then

Accepted Answer

A) monetary policy is ineffective while fiscal policy is highly effective. 
B) fiscal policy is completely ineffective while monetary policy is highly effective. 
C) both monetary policy and fiscal policy are effective. 
D) monetary policy is less effective than fiscal policy. 
A) monetary policy is ineffective while fiscal policy is highly effective. 
B) fiscal policy is completely ineffective while monetary policy is highly effective. 
C) both monetary policy and fiscal policy are effective. 
D) monetary policy is less effective than fiscal policy.

Question 17

Under perfect capital mobility,an increase in world interest rates will

Accepted Answer

A) increase income and reduce domestic interest rates. 
B) increase income. 
C) increase income and lead to a balance of payment deficit. 
D) increase income and lead to a balance of payment surplus. 
A) increase income and reduce domestic interest rates. 
B) increase income. 
C) increase income and lead to a balance of payment deficit. 
D) increase income and lead to a balance of payment surplus.

Question 18

If exchange rates are perfectly flexible,an expansionary U.S.monetary policy will

Accepted Answer

A) increase the supply of dollars in the foreign exchange market. 
B) shift the LM curve to the right. 
C) reduce the demand for dollars in the foreign exchange market. 
D) reduce the value of the dollar. 
E) all of the above. 
A) increase the supply of dollars in the foreign exchange market. 
B) shift the LM curve to the right. 
C) reduce the demand for dollars in the foreign exchange market. 
D) reduce the value of the dollar. 
E) all of the above.

Question 19

A rightward shift of the BP curve occurs with a

Accepted Answer

A) fall in the exchange rate. 
B) cut in taxes. 
C) decrease in government spending. 
D) an increase in exports. 
A) fall in the exchange rate. 
B) cut in taxes. 
C) decrease in government spending. 
D) an increase in exports.

Question 20

Assume perfect capital mobility.Under a fixed exchange rate system,expansionary fiscal policy causes the value of the dollar to _____,while expansionary monetary policy causes the value of the dollar to _____.

Accepted Answer

A) rise; rise 
B) fall; fall 
C) fall; rise 
D) rise; fall 
A) rise; rise 
B) fall; fall 
C) fall; rise 
D) rise; fall

Under perfect capital mobility,fiscal policy has the largest impact on the income under:

A depreciation of the dollar under perfect capital mobility would cause

In an open economy,there should be a

Under perfect capital mobility,monetary policy has the largest impact on the income under:

Under perfect capital mobility and a floating exchange rate system,expansionary fiscal policy leads to

An exogenous increase in the country's trade balance shifts the

In the Mundell-Fleming model with a floating exchange rate and perfect capital mobility,expansionary fiscal policy does all of the following EXCEPT:

Assuming perfect perfect capital mobility,the BP schedule is

Dollarization by a foreign country is another form of:

In the Mundell-Fleming model,all of the following are true EXCEPT:

Suppose that the US and Europe maintain a fixed exchange rate between themselves.If inflation in the US is 3% and in Europe it is 1%,what would happen to the trade balances between these two countries? Could these countries maintain their fixed exchange rates forever? Why or why not?

Under perfect capital mobility,what would occur if the interest rate on dollar-denominated bonds amounts to 6.1 percent and the interest rate on euro-denominated bonds adjusted for changes in the exchange rate is expected to be 5.0 percent? Explain.

According to the balance of payments schedule,as the level of income rises

Assuming perfect capital mobility and a fixed exchange rate,then an increase in government spending shifts

Which of the following statements is (are)correct? According to the Feldstein-Horioka Saving Investment Puzzle

Assuming perfect capital mobility and flexible exchange rates,then

Under perfect capital mobility,an increase in world interest rates will

If exchange rates are perfectly flexible,an expansionary U.S.monetary policy will

A rightward shift of the BP curve occurs with a

Assume perfect capital mobility.Under a fixed exchange rate system,expansionary fiscal policy causes the value of the dollar to _,while expansionary monetary policy causes the value of the dollar to _.

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

Under perfect capital mobility,fiscal policy has the largest impact on the income under:

A depreciation of the dollar under perfect capital mobility would cause

In an open economy,there should be a

Under perfect capital mobility,monetary policy has the largest impact on the income under:

Under perfect capital mobility and a floating exchange rate system,expansionary fiscal policy leads to

An exogenous increase in the country's trade balance shifts the

In the Mundell-Fleming model with a floating exchange rate and perfect capital mobility,expansionary fiscal policy does all of the following EXCEPT:

Assuming perfect perfect capital mobility,the BP schedule is

Dollarization by a foreign country is another form of:

In the Mundell-Fleming model,all of the following are true EXCEPT:

Suppose that the US and Europe maintain a fixed exchange rate between themselves.If inflation in the US is 3% and in Europe it is 1%,what would happen to the trade balances between these two countries? Could these countries maintain their fixed exchange rates forever? Why or why not?

Under perfect capital mobility,what would occur if the interest rate on dollar-denominated bonds amounts to 6.1 percent and the interest rate on euro-denominated bonds adjusted for changes in the exchange rate is expected to be 5.0 percent? Explain.

According to the balance of payments schedule,as the level of income rises

Assuming perfect capital mobility and a fixed exchange rate,then an increase in government spending shifts

Which of the following statements is (are)correct? According to the Feldstein-Horioka Saving Investment Puzzle

Assuming perfect capital mobility and flexible exchange rates,then

Under perfect capital mobility,an increase in world interest rates will

If exchange rates are perfectly flexible,an expansionary U.S.monetary policy will

A rightward shift of the BP curve occurs with a

Assume perfect capital mobility.Under a fixed exchange rate system,expansionary fiscal policy causes the value of the dollar to _____,while expansionary monetary policy causes the value of the dollar to _____.

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 the value of the dollar to _,while expansionary monetary policy causes the value of the dollar to _.