Question 1

In a closed economy, which of the following will cause the economy's aggregate demand curve to shift to the right?

Accepted Answer

A)  decreases and wages and salaries paid to employees 
B)  increases in the prices of oil and natural gas 
C)  decreases in income taxes for households 
D)  decreases in the productivity of labor

Question 2

A problem that economic policy makers confront when attempting to promote both internal and external balance for the nation is that monetary or fiscal policies aimed at the domestic sector also have impacts on:

Accepted Answer

A)  Trade flows only 
B)  Capital flows only 
C)  both trade flows and capital flows 
D)  Neither trade flows nor capital flows

Question 3

With a fixed exchange rate system, internal balance is most effectively achieved by using

Accepted Answer

A)  Expansionary monetary policy to combat recession 
B)  Expansionary fiscal policy to combat inflation 
C)  Contractionary monetary policy to combat recession 
D)  Contractionary fiscal policy to combat recession

Question 4

An $\underline {  \text { expenditure-reducing }  }$ policy would consist of a decrease in:

Accepted Answer

A)  The par value of a currency 
B)  Government expenditures 
C)  Import duties 
D)  Business or household taxes

Question 5

Given fixed exchange rates, assume Mexico initiates $\underline { \text { contractionary }  }$ monetary and fiscal policies to combat inflation. These policies will also:

Accepted Answer

A)  Reduce a balance-of-payments surplus 
B)  Reduce a balance-of-payments deficit 
C)  Increases both imports and exports 
D)  Decrease both imports and exports

Question 6

Under a fixed exchange-rate system and high capital mobility, a $\underline {   \text { contraction } }$ in the domestic money supply leads to a:

Accepted Answer

A)  Trade-account deficit and a capital-account surplus 
B)  Trade-account deficit and a capital-account deficit 
C)  Trade-account surplus and a capital-account surplus 
D)  Trade-account surplus and a capital-account deficit

Question 7

Most industrial countries generally considered ____ as the most important economic goal.

Accepted Answer

A)  External balance 
B)  Internal balance 
C)  Maximum efficiency for business 
D)  Maximum efficiency for labor

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  cause aggregate demand to increase, thus strengthening the policy's expansionary effect on real output 
B)  cause aggregate demand to decrease, thus eliminating the policy's expansionary effect on real output 
C)  have conflicting effects on aggregate demand, thus weakening the policy's expansionary effect on real output 
D)  have conflicting effects on aggregate demand, thus strengthening the policy's expansionary effect on real output

Question 10

When the economy is in deep recession or depression, it is operating on that portion of its aggregate supply curve that is horizontal.

Accepted Answer

A) True 
 B)False

Question 11

Which policies are $\underline {   \text { expenditure-changing } }$ policies?

Accepted Answer

A)  Currency devaluation and revaluation 
B)  Import quotas and tariffs 
C)  Monetary and fiscal policy 
D)  Wage and price controls

Question 12

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

Accepted Answer

A)  a depreciation of the domestic currency and a rise in net exports 
B)  a depreciation of the domestic currency and a fall in net exports 
C)  an appreciation of the domestic currency and a rise in net exports 
D)  an appreciation of the domestic currency and a fall in net exports

Question 13

A system of fixed exchange rates and high capital mobility strengthens which policy in combating a recession:

Accepted Answer

A)  Expansionary fiscal policy 
B)  Expansionary monetary policy 
C)  Contractionary fiscal policy 
D)  Contractionary monetary policy

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

A nation experiences $\underline {  \text { overall }  }$ balance if it achieves:

Accepted Answer

A)  Balance-of-payments equilibrium, full employment, and price stability 
B)  Balance-of-payments equilibrium, maximum productivity, and price stability 
C)  Full employment, price stability and no change in its money supply 
D)  Full employment, price stability, and maximum productivity

Question 17

International policy coordination is plagued by differing national economic objectives, institutions, political climates, and phases in the business cycle.

Accepted Answer

A) True 
 B)False

Question 18

A nation experiences $\underline {  \text { external }  }$ balance if it achieves:

Accepted Answer

A)  No net changes in its international gold stocks 
B)  Productivity levels equal to those of its trading partners 
C)  An increase in its money supply equal to increases overseas 
D)  Equilibrium in its balance of payments

Question 19

The Bonn Summit of 1978 and Plaza Accord of 1985 are examples of international policy coordination.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 16: Macroeconomic Policy in an Open Economy

In a closed economy, which of the following will cause the economy's aggregate demand curve to shift to the right?

A problem that economic policy makers confront when attempting to promote both internal and external balance for the nation is that monetary or fiscal policies aimed at the domestic sector also have impacts on:

With a fixed exchange rate system, internal balance is most effectively achieved by using

An expenditure-reducing ‾\underline { \text { expenditure-reducing } } expenditure-reducing ​ policy would consist of a decrease in:

Given fixed exchange rates, assume Mexico initiates contractionary ‾\underline { \text { contractionary } } contractionary ​ monetary and fiscal policies to combat inflation. These policies will also:

Under a fixed exchange-rate system and high capital mobility, a contraction ‾\underline { \text { contraction } } contraction ​ in the domestic money supply leads to a:

Most industrial countries generally considered ____ as the most important economic goal.

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

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

When the economy is in deep recession or depression, it is operating on that portion of its aggregate supply curve that is horizontal.

Which policies are expenditure-changing ‾\underline { \text { expenditure-changing } } expenditure-changing ​ policies?

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

A system of fixed exchange rates and high capital mobility strengthens which policy in combating a recession:

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.

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

A nation experiences overall ‾\underline { \text { overall } } overall ​ balance if it achieves:

International policy coordination is plagued by differing national economic objectives, institutions, political climates, and phases in the business cycle.

A nation experiences external ‾\underline { \text { external } } external ​ balance if it achieves:

The Bonn Summit of 1978 and Plaza Accord of 1985 are examples of international policy coordination.

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

An $\underline { \text { expenditure-reducing } }$ policy would consist of a decrease in:

Given fixed exchange rates, assume Mexico initiates $\underline { \text { contractionary } }$ monetary and fiscal policies to combat inflation. These policies will also:

Under a fixed exchange-rate system and high capital mobility, a $\underline { \text { contraction } }$ in the domestic money supply leads to a:

Which policies are $\underline { \text { expenditure-changing } }$ policies?

A nation experiences $\underline { \text { overall } }$ balance if it achieves:

A nation experiences $\underline { \text { external } }$ balance if it achieves: