Exam 16: Macroeconomic Policy in an Open Economy

Given a system of floating exchange rates,a contractionary monetary policy by the Federal Reserve will cause

Given an open economy with high capital mobility and floating exchange rates,suppose an expansionary fiscal policy is implemented to combat recession.The initial and secondary effects of the policy

The appropriate expenditure-switching policy to correct a current account deficit is:

Suppose a central bank prevents an appreciation of its currency by intervening in the foreign exchange market and selling its currency for foreign currency.This causes the

Expenditure-switching policies include currency revaluation,currency devaluation,and direct controls such as tariffs,quotas,and subsidies.

Exchange rate management policies require international policy coordination because a depreciation of one nation's currency implies an appreciation of its trading partner's currency.

Under a fixed exchange-rate system and high capital mobility,an expansionary fiscal policy leads to a:

A nation realizes internal balance if economy achieves full employment and price stability.

Assume a system of floating exchange rates.In response to relatively high interest rates abroad,suppose domestic investors place their funds in foreign capital markets.The result would be

Currency devaluation and revaluation primarily affect the economy's current account and have secondary effects on domestic employment and inflation.

Under floating exchange rates and high capital mobility,an expansionary monetary policy would help a country resolve a recession and a current account deficit.

A nation realizes external balance when its current account is in equilibrium.

Given an open economy with high capital mobility and floating exchange rates,suppose an expansionary monetary policy is implemented to combat recession.The initial and secondary effects of the policy have conflicting effects on aggregate demand,thus weakening the policy's expansionary effect.

The Group of five (G-5)nations include Japan,Germany,China,and Australia.

A nation experiences internal balance if it achieves:

Suppose a central bank prevents a depreciation of its currency by intervening in the foreign exchange market and buying its currency with foreign currency.This causes the

Expenditure-changing policies modify the direction of aggregate demand,shifting it between domestic output and imports.

Under a fixed exchange-rate system and high capital mobility,a contractionary fiscal policy leads to a:

Suppose Brazil faces domestic recession and a current account surplus.Should Brazil revalue its currency,one would expect the:

Suppose a central bank prevents a depreciation of its currency by intervening in the foreign exchange market and buying its currency with foreign currency.This causes the