Question 1

Which of the following statements about the financial crisis that began in 2008 is true?

Accepted Answer

A)  It was a great illustration of how interdependent national economies are. 
B)  Most economists agree that it originated in China. 
C)  It only lasted 3 weeks. 
D)  It only affected housing markets. 
A)  It was a great illustration of how interdependent national economies are. 
B)  Most economists agree that it originated in China. 
C)  It only lasted 3 weeks. 
D)  It only affected housing markets. A

Question 2

External balance refers to

Accepted Answer

A)  an economy which is on its LM curve. 
B)  an economy which is on its IS curve. 
C)  an economy which is on its BP curve. 
D)  All of the above. 
A)  an economy which is on its LM curve. 
B)  an economy which is on its IS curve. 
C)  an economy which is on its BP curve. 
D)  All of the above. C

Question 3

At higher income levels the interest rate must be lower to achieve money market equilibrium.

Accepted Answer

A) True 
 B)False  False

Question 4

Which of the following is not a true statement?

Accepted Answer

A)  The higher the income level, the lower interest rates must be for goods market equilibrium. 
B)  The higher the income level, the higher interest rates must be for money market equilibrium. 
C)  The higher the income level, the lower the interest rate must be for external balance to be achieved. 
D)  Equilibrium occurs at the intersection of the IS, LM, and BP curves. 
A)  The higher the income level, the lower interest rates must be for goods market equilibrium. 
B)  The higher the income level, the higher interest rates must be for money market equilibrium. 
C)  The higher the income level, the lower the interest rate must be for external balance to be achieved. 
D)  Equilibrium occurs at the intersection of the IS, LM, and BP curves.

Question 5

Internal balance describes

Accepted Answer

A)  equilibrium in the goods market. 
B)  a desired level of trade or capital flows. 
C)  where the IS and BP curve intersect. 
D)  a domestic rate of growth consistent with a low unemployment rate. 
A)  equilibrium in the goods market. 
B)  a desired level of trade or capital flows. 
C)  where the IS and BP curve intersect. 
D)  a domestic rate of growth consistent with a low unemployment rate.

Question 6

With perfect asset substitutability and capital mobility the domestic interest rate is equal to the foreign rate.

Accepted Answer

A) True 
 B)False

Question 7

Illustrate with a graph the effects of fiscal policy when exchange rates are fixed.

Accepted Answer

Draw horizontal BP curve. Fisc

Question 8

With floating exchange rates

Accepted Answer

A)  monetary policy is effective. 
B)  fiscal policy is ineffective. 
C)  monetary and fiscal policy are effective. 
D)  fiscal and monetary policy are ineffective. 
A)  monetary policy is effective. 
B)  fiscal policy is ineffective. 
C)  monetary and fiscal policy are effective. 
D)  fiscal and monetary policy are ineffective.

Question 9

Fiscal policy is most effective when exchange rates are fixed.

Accepted Answer

A) True 
 B)False

Question 10

Illustrate the effectiveness of monetary policy with fixed exchange rates.

Accepted Answer

The required intervention to maintain th

Question 11

A point to the left of the BP curve would represent

Accepted Answer

A)  a balance of payments deficit. 
B)  a balance of payments surplus. 
C)  internal disequilibrium. 
D)  Both A and C. 
A)  a balance of payments deficit. 
B)  a balance of payments surplus. 
C)  internal disequilibrium. 
D)  Both A and C.

Question 12

During the global financial crisis of 2008-2009, it appeared that overt global policy coordination was not practiced, but countries were all following similar policies, such as decreasing interest rates.

Accepted Answer

A) True 
 B)False

Question 13

Points to the left of the IS curve represent excess demand for goods.

Accepted Answer

A) True 
 B)False

Question 14

What policies would you recommend to the U.S. government to lower the balance of trade deficit and decrease net capital inflows?

Accepted Answer

Lower the

Question 15

The goal of international economic policy cooperation is to allow for greater flexibility in exchange rates.

Accepted Answer

A) True 
 B)False

Question 16

Analyze the following statement "the global financial crisis of 2008-2009 was a great illustration of how interdependent national economies are."

Accepted Answer

A) True 
 B)False

Question 17

The open-economy multiplier is equal to the reciprocal of the marginal propensity to save.

Accepted Answer

A) True 
 B)False

Question 18

The LM curve represents combinations of income and interest rate which

Accepted Answer

A)  clear the goods market. 
B)  achieve the external equilibrium. 
C)  clear the money market. 
D)  achieve internal equilibrium. 
A)  clear the goods market. 
B)  achieve the external equilibrium. 
C)  clear the money market. 
D)  achieve internal equilibrium.

Question 19

The world of flexible exchange rates and perfect capital mobility is often called the

Accepted Answer

A)  Keynesian model. 
B)  Mundell-Fleming model. 
C)  Monetarist model. 
D)  Melvin model. 
A)  Keynesian model. 
B)  Mundell-Fleming model. 
C)  Monetarist model. 
D)  Melvin model.

Question 20

Which of the following would not cause the IS curve to shift to the left?

Accepted Answer

A)  a decrease in government expenditures 
B)  a decrease in the money supply 
C)  an increase in the domestic price level 
D)  an increase in taxes 
A)  a decrease in government expenditures 
B)  a decrease in the money supply 
C)  an increase in the domestic price level 
D)  an increase in taxes

Exam 21: Open-Economy Macroeconomic Policy and Adjustment

Which of the following statements about the financial crisis that began in 2008 is true?

External balance refers to

At higher income levels the interest rate must be lower to achieve money market equilibrium.

Which of the following is not a true statement?

Internal balance describes

With perfect asset substitutability and capital mobility the domestic interest rate is equal to the foreign rate.

Illustrate with a graph the effects of fiscal policy when exchange rates are fixed.

With floating exchange rates

Fiscal policy is most effective when exchange rates are fixed.

Illustrate the effectiveness of monetary policy with fixed exchange rates.

A point to the left of the BP curve would represent

During the global financial crisis of 2008-2009, it appeared that overt global policy coordination was not practiced, but countries were all following similar policies, such as decreasing interest rates.

Points to the left of the IS curve represent excess demand for goods.

What policies would you recommend to the U.S. government to lower the balance of trade deficit and decrease net capital inflows?

The goal of international economic policy cooperation is to allow for greater flexibility in exchange rates.

Analyze the following statement "the global financial crisis of 2008-2009 was a great illustration of how interdependent national economies are."

The open-economy multiplier is equal to the reciprocal of the marginal propensity to save.

The LM curve represents combinations of income and interest rate which

The world of flexible exchange rates and perfect capital mobility is often called the

Which of the following would not cause the IS curve to shift to the left?

An Introduction to International Trade

Tools of Analysis for International Trade Models

The Classical Model of International Trade

The Heckscher-Ohlin Theory

Tests of Trade Models: the Leontief Paradox and Its After-math

Tariffs

Nontariff Barriers and Arguments for Protection

Commercial Policy: History and Practice

Preferential Trade Arrangements

International Trade and Economic Growth

An Introduction to International Finance

The Balance of Payments

The Foreign-Exchange Market

Prices and Exchange Rates: Purchasing Power Parity

Exchange Rates, Interest Rates, and Interest Parity

Foreign-Exchange Risk, Forecasting, and International Investment

Basic Theories of the Balance of Payments

Exchange Rate Theories

Alternative International Monetary Standards

International Banking, Debt, and Risk

Filters