Question 1

Which of the following will cause the LM curve to shift to the left?

Accepted Answer

A) A reduction in the interest rates 
B) A decrease in the average price level 
C) An exogenous decrease in money demand 
D) A contractionary monetary policy 
A) A reduction in the interest rates 
B) A decrease in the average price level 
C) An exogenous decrease in money demand 
D) A contractionary monetary policy

Question 2

The official settlements balance is in _____ if the IS-LM intersection is _____ the FE curve.

Accepted Answer

A) surplus; on 
B) surplus; to the right of 
C) surplus; to the left of 
D) deficit; on 
A) surplus; on 
B) surplus; to the right of 
C) surplus; to the left of 
D) deficit; on

Question 3

For small open economy, assume that the marginal propensity to import is 0.3, and that interest rates, exchange rates, and the price level are all constant. If an increase of $10 billion in government spending results in an increase of $6 billion in imports, then:

Accepted Answer

A) real GDP increases by $4 billion. 
B) the spending multiplier is 2. 
C) taxes increase by $10 billion. 
D) real domestic investment decreases by $4 billion. 
A) real GDP increases by $4 billion. 
B) the spending multiplier is 2. 
C) taxes increase by $10 billion. 
D) real domestic investment decreases by $4 billion.

Question 4

Which of the following will NOT cause the IS curve to shift to the left?

Accepted Answer

A) A contractionary fiscal policy 
B) An exogenous decrease in exports 
C) An exogenous decrease in imports 
D) An exogenous decrease in household consumption 
A) A contractionary fiscal policy 
B) An exogenous decrease in exports 
C) An exogenous decrease in imports 
D) An exogenous decrease in household consumption

Question 5

Describe weaknesses of the IS-LM-FE model.

Accepted Answer

The IS-LM-FE model is essentially a shor

Question 6

Use the standard IS-LM-FE framework and assume the country begins at a triple intersection. What effect will an increase in the country's money supply have on domestic interest rates, output levels, and the official settlements balance, assuming low capital mobility?

Accepted Answer

The LM curve shifts to the right, and th

Question 7

A devaluation of the exchange rate will:

Accepted Answer

A) shift the IS curve to the right. 
B) shift the LM curve to the right. 
C) shift the FE curve to the left. 
D) lead to a financial account surplus. 
A) shift the IS curve to the right. 
B) shift the LM curve to the right. 
C) shift the FE curve to the left. 
D) lead to a financial account surplus.

Question 8

A rise in the domestic product of an economy deteriorates its current account balance.

Accepted Answer

A) True 
 B)False

Question 9

Start from an initial triple intersection of the IS, LM, and FE curves. Before anything else adjusts, a shift to an expansionary monetary policy results in a(n):

Accepted Answer

A) overall balance of payments surplus. 
B) overall balance of payments deficit. 
C) increase in domestic interest rates. 
D) decrease in domestic output. 
A) overall balance of payments surplus. 
B) overall balance of payments deficit. 
C) increase in domestic interest rates. 
D) decrease in domestic output.

Question 10

What is the mechanism at work that causes the increase in a country's government spending to have an impact on foreign countries' production and income?

Accepted Answer

When government spending increases, GDP

Question 11

At points above the IS curve, there is an _____ and at points below the IS curve there is an _____.

Accepted Answer

A) excess demand for goods; excess supply of goods 
B) excess demand for money; excess supply of money 
C) excess supply of money; excess demand for money 
D) excess supply of goods; excess demand for goods 
A) excess demand for goods; excess supply of goods 
B) excess demand for money; excess supply of money 
C) excess supply of money; excess demand for money 
D) excess supply of goods; excess demand for goods

Question 12

For a small country with closed economy, if the marginal propensity to save is equal to 0.2, then the spending multiplier indicates that a $10 exogenous increase in government spending will lead to a $20 increase in GDP.

Accepted Answer

A) True 
 B)False

Question 13

The locomotive theory posits that growth in one or more large countries:

Accepted Answer

A) will retard the growth of smaller countries dependent on exports. 
B) will lead smaller countries to open their economies. 
C) can put pressure on their domestic import-competing firms. 
D) can raise growth in other smaller countries that trade with these larger countries. 
A) will retard the growth of smaller countries dependent on exports. 
B) will lead smaller countries to open their economies. 
C) can put pressure on their domestic import-competing firms. 
D) can raise growth in other smaller countries that trade with these larger countries.

Question 14

Which of the following will cause the FE curve to shift to the left?

Accepted Answer

A) An exogenous increase in exports 
B) An exogenous increase in imports 
C) Exogenous changes that cause an increase in capital inflows 
D) A decrease in real domestic product (Y) 
A) An exogenous increase in exports 
B) An exogenous increase in imports 
C) Exogenous changes that cause an increase in capital inflows 
D) A decrease in real domestic product (Y)

Question 15

Expansionary monetary policy will cause the FE curve to shift to the right.

Accepted Answer

A) True 
 B)False

Question 16

Exports depend on income in the exporting country and on the relative prices between the exporting and importing countries.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is true for an expansionary fiscal policy?

Accepted Answer

A) It leads to a fall in the interest rate. 
B) It has no impact on the aggregate output. 
C) It causes an increase in the aggregate demand. 
D) It increases the level of imports. 
A) It leads to a fall in the interest rate. 
B) It has no impact on the aggregate output. 
C) It causes an increase in the aggregate demand. 
D) It increases the level of imports.

Question 18

Fiscal policy is the set of central-bank policies, institutions, and bank behavioral patterns governing the availability of bank checking deposits and currency in circulation.

Accepted Answer

A) True 
 B)False

Question 19

The United States accounts for more than 50% of world production.

Accepted Answer

A) True 
 B)False

Question 20

In IS-LM-FE analysis, expansionary monetary policy:

Accepted Answer

A) leads to lower interest rates. 
B) leads to higher interest rates. 
C) lowers levels of GDP. 
D) shifts the LM curve to the left. 
A) leads to lower interest rates. 
B) leads to higher interest rates. 
C) lowers levels of GDP. 
D) shifts the LM curve to the left.

Exam 22: How Does the Open Macroeconomy Work

Which of the following will cause the LM curve to shift to the left?

The official settlements balance is in _____ if the IS-LM intersection is _____ the FE curve.

For small open economy, assume that the marginal propensity to import is 0.3, and that interest rates, exchange rates, and the price level are all constant. If an increase of $10 billion in government spending results in an increase of $6 billion in imports, then:

Which of the following will NOT cause the IS curve to shift to the left?

Describe weaknesses of the IS-LM-FE model.

Use the standard IS-LM-FE framework and assume the country begins at a triple intersection. What effect will an increase in the country's money supply have on domestic interest rates, output levels, and the official settlements balance, assuming low capital mobility?

A devaluation of the exchange rate will:

A rise in the domestic product of an economy deteriorates its current account balance.

Start from an initial triple intersection of the IS, LM, and FE curves. Before anything else adjusts, a shift to an expansionary monetary policy results in a(n):

What is the mechanism at work that causes the increase in a country's government spending to have an impact on foreign countries' production and income?

At points above the IS curve, there is an _____ and at points below the IS curve there is an _____.

For a small country with closed economy, if the marginal propensity to save is equal to 0.2, then the spending multiplier indicates that a $10 exogenous increase in government spending will lead to a $20 increase in GDP.

The locomotive theory posits that growth in one or more large countries:

Which of the following will cause the FE curve to shift to the left?

Expansionary monetary policy will cause the FE curve to shift to the right.

Exports depend on income in the exporting country and on the relative prices between the exporting and importing countries.

Which of the following is true for an expansionary fiscal policy?

Fiscal policy is the set of central-bank policies, institutions, and bank behavioral patterns governing the availability of bank checking deposits and currency in circulation.

The United States accounts for more than 50% of world production.

In IS-LM-FE analysis, expansionary monetary policy:

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

Filters

The official settlements balance is in _ if the IS-LM intersection is _ the FE curve.

At points above the IS curve, there is an _ and at points below the IS curve there is an _.