Question 1

In an open economy,there should be a close positive relationship between

Accepted Answer

A) budget deficits and interest rates. 
B) trade deficits and budget deficits. 
C) savings and investment. 
D) investment and consumption. 
E) none of the above.

Question 2

Which of the following statements is (are)correct?

Accepted Answer

A) Given a fixed exchange rate system,there is an absence of conflicts between internal and external balance goals 
B) Under a fixed exchange rate system,potential conflicts arise between the goals of internal balance and external balance 
C) Countries may find that expansionary policies,which might be desired in order to reduce the unemployment rate,lead to income levels that are too high to balance the trade account and could lead to balance of payments problems 
D) Both a and c 
E) Both b and c

Question 3

In the Mundell-Fleming model with perfect capital mobility,the domestic interest rates are determined by

Accepted Answer

A) monetary policy. 
B) the IS and LM curves. 
C) domestic savings and investment. 
D) budget deficits. 
E) none of the above.

Question 4

In the Mundell-Fleming model,the exogenous variables are

Accepted Answer

A) government spending,taxes,and income. 
B) the exchange rate and the price level. 
C) the price level,the world interest rate,monetary policy,and fiscal policy. 
D) the world interest rate,the price level,and the exchange rate. 
E) none of the above.

Question 5

Assume perfect capital mobility and a fixed exchange rate system.Then,an increase in government spending would shift the

Accepted Answer

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

Exam 15: Monetary and Fiscal Policy in the Open Economy

In an open economy,there should be a close positive relationship between

Which of the following statements is (are) correct?

In the Mundell-Fleming model with perfect capital mobility,the domestic interest rates are determined by

In the Mundell-Fleming model,the exogenous variables are

Assume perfect capital mobility and a fixed exchange rate system.Then,an increase in government spending would shift the