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15 QuestionsShow answers
  • Question 1
    30 seconds
    Q.

    Within a fixed exchange rate system, the effect of an expansionary fiscal policy action on the balance of payments will be to

    answer choices

    worsen the balance on the capital account but improve the trade balance.

    worsen the trade balance but improve the balance on the capital account.

    worsen both the trade balance and the balance on the capital account

    improve both the trade balance and the balance on the capital account.

  • Question 2
    30 seconds
    Q.

    A fall in the demand for U.S. exports would result in a rise in the exchange rate when

    answer choices

    a. there is no capital mobility and exchange rates are allowed to float.

    b. there is capital mobility.

    c. exchange rates are allowed to float

    d. the country has a balance of payments surplus.

    both c and d.

  • Question 3
    30 seconds
    Q.

    Assuming perfect capital mobility and flexible exchange rates, then

    answer choices

    monetary policy is ineffective while fiscal policy is highly effective

    fiscal policy is completely ineffective while monetary policy is highly effective

    both monetary policy and fiscal policy are effective.

    monetary policy is less effective than fiscal policy.

  • Question 4
    30 seconds
    Q.

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

    answer choices

    monetary policy.

    the IS and LM curves.

    domestic savings and investment.

    budget deficits

    none of the above

  • Question 5
    30 seconds
    Q.

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

    answer choices

    LM schedule to the left.

    BP schedule to the right.

    BP schedule to the left.

    IS schedule to the right

  • Question 6
    30 seconds
    Q.

    Which of the following factors might make capital mobility less than perfect?

    answer choices

    a. Risks due to exchange rate changes

    b. Differential risk on the assets of different countries

    c. Technological progress, which improves the quality of information on foreign assets

    both a and b.

    All of the above

  • Question 7
    30 seconds
    Q.

    Empirically, there is a close positive relationship between domestic savings and investment. This is consistent with what we should expect to observe in

    answer choices

    a closed economy

    the Mundell-Flemming model with perfect capital mobility.

    the Mundell-Flemming model with perfect capital mobility and flexible exchange rates.

    the Mundell-Flemming model with perfect capital mobility and fixed exchange rates.

    none of the above.

  • Question 8
    30 seconds
    Q.

    The balance of payments schedule can be expressed as

    answer choices

    X(Yƒ, π) − Z(Y, π) − F(r − rƒ) = 0

    X(Yƒ + π) + Z(Y, π) − F(r − rƒ) = 0

    X(Yƒ, π) − Z(Y, π) + F(r − rƒ) = 0

    X(Yƒ, π) + Z(Y, π) + F(r − rƒ) = 0

  • Question 9
    30 seconds
    Q.

    In the Mundell-Fleming model, regardless of whether the economy has perfect capital mobility or not, an increase in the money supply

    answer choices

    reduces interest rates .

    increases income

    decreases the trade balance.

    increases capital inflows.

  • Question 10
    30 seconds
    Q.

    Which of the following statements is (are) correct? The Mundell-Fleming model is

    answer choices

    a. a new closed-economy model.

    b. implicitly assumes a fixed domestic price level.

    c. is an open-economy version of the IS-LM model.

    both b and c

  • Question 11
    30 seconds
    Q.

    Assuming imperfect capital mobility and a fixed exchange rate, then an expansionary monetary policy

    answer choices

    results in a balance of payments surplus without a conflict between domestic goals and external balance

    results in a balance of payments deficit with a potential conflict between domestic goals and external balance

    will shift the LM curve to the left.

    will have no effect on the balance of payments.

  • Question 12
    30 seconds
    Q.

    In the Mundell-Fleming model, all of the following are true EXCEPT:

    answer choices

    the intersection of the IS and LM curves determine the equilibrium exchange rate

    the BP curves position is determined by the exchange rate.

    the policy choice between fixed and floating exchange rates shifts the BP curve.

    the extent of capital mobility determines the slope of the BP curve.

  • Question 13
    30 seconds
    Q.

    Dollarization by a foreign country is another form of:

    answer choices

    balancing a country’s current account.

    maintaining monetary policy independence.

    fixing an exchange rate

    maintaining a balanced government budget.

  • Question 14
    30 seconds
    Q.

    Assume perfect capital mobility. Under a fixed exchange rate system, expansionary fiscal policy causes income to _____, while under flexible exchange rates expansionary fiscal policy causes income to _____.

    answer choices

    increase; increase

    increase; remain unchanged

    increase; decrease

    remain unchanged; increase

  • Question 15
    30 seconds
    Q.

    In the Mundell-Fleming model with a floating exchange rate and perfect capital mobility, an increase in the money supply does all of the following EXCEPT:

    answer choices

    increase interest rates

    increase income.

    increase the IS curve

    increase inflation.

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