39. 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
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
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – PA – DISC: International trade and fi – DISC: International trade and finance
Monetary and Fiscal Policy in an Open Economy
BLOOM’S: Comprehension
40. 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.
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
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – PA – DISC: International trade and fi – DISC: International trade and finance
Monetary and Fiscal Policy in an Open Economy
BLOOM’S: Comprehension
41. When a nation realizes external balance
a.
it can have a current account deficit
b.
it can have a current account surplus
c.
it has neither a current account deficit nor a current account surplus
d.
Both a and b
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – PA – DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – PA – DISC: International trade and fi – DISC: International trade and finance
Monetary and Fiscal Policy in an Open Economy
BLOOM’S: Comprehension
42. Direct controls may take the form of
a.
Tariffs
b.
Export subsidies
c.
Export quotas
d.
All of the above
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – PA – DISC: International trade and fi – DISC: International trade and finance
Policy Instruments
BLOOM’S: Knowledge
43. With a fixed exchange rate system, internal balance is most effectively achieved by using
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
a
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – PA – DISC: International trade and fi – DISC: International trade and finance
Policy Instruments
BLOOM’S: Comprehension
44. Policy coordination is complicated by
a.
b.
c.
d.
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – PA – DISC: International trade and fi – DISC: International trade and finance
International Economic Policy Coordination
BLOOM’S: Comprehension
45. A nation realizes internal balance if economy achieves full employment and price stability.
a.
True
b.
False
True
Policy Instruments
BLOOM’S: Comprehension
46. Nations have typically placed greater importance to the goal of internal balance than to the goal of external balance.
a.
True
b.
False
True
Moderate
47. A nation realizes external balance when its current account is in equilibrium.
a.
True
b.
False
True
Moderate
48. A nation realizes overall balance when it achieves full employment and current account equilibrium.
a.
True
b.
False
False
Moderate
49. Expenditure-changing policies modify the direction of aggregate demand, shifting it between domestic output and
imports.
a.
True
b.
False
True
Moderate
50. Expenditure-switching policies include fiscal policy and monetary policy.
a.
True
b.
False
False
Moderate
51. Economic policymakers have typically adopted expenditure-increasing policies to combat inflation and expenditure-
reducing policies to combat recession.
a.
True
b.
False
False
Moderate
52. Expenditure-switching policies alter the level of total spending (aggregate demand) for goods and services produced
domestically and those imported.
a.
True
b.
False
False
Moderate
53. Currency devaluation and revaluation are considered to be expenditure-changing policies since they alter a country’s
aggregate demand for goods and services.
a.
True
b.
False
False
Moderate
54. Expenditure-switching policies include currency revaluation, currency devaluation, and direct controls such as tariffs,
quotas, and subsidies.
a.
True
b.
False
True
Moderate
55. 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.
a.
True
b.
False
False
Challenging
56. Given an open economy with high capital mobility and fixed exchange rates, suppose an expansionary fiscal policy is
implemented to combat recession. The initial and secondary effects of the policy cause aggregate demand to increase, thus
strengthening the policy’s expansionary effect.
a.
True
b.
False
True
Moderate
57. When the economy is in deep recession or depression, it is operating on that portion of its aggregate supply curve that
is horizontal.
Moderate
a.
True
b.
False
58. Changes in a country‘s net exports, investment spending, or government spending will cause its aggregate demand
curve to shift.
a.
True
b.
False
True
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – PA – DISC: International trade and fi – DISC: International trade and finance
Aggregate Demand and Aggregate Supply: A Brief Review
BLOOM’S: Comprehension
59. Given an open economy with high capital mobility, fiscal policy is strengthened under fixed exchange rates.
a.
True
b.
False
True
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – PA – DISC: International trade and fi – DISC: International trade and finance
Monetary and Fiscal Policy in an Open Economy
BLOOM’S: Comprehension
60. Given an open economy with high capital mobility, monetary policy is strengthened under fixed exchange rates.
a.
True
b.
False
False
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – PA – DISC: International trade and fi – DISC: International trade and finance
Monetary and Fiscal Policy in an Open Economy
BLOOM’S: Comprehension
61. Under floating exchange rates and high capital mobility, an expansionary monetary policy would help a country
resolve a recession and a current account deficit.
True
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – PA – DISC: International trade and fi – DISC: International trade and finance
Aggregate Demand and Aggregate Supply: A Brief Review
BLOOM’S: Comprehension
a.
True
b.
False
62. 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.
a.
True
b.
False
True
Moderate
63. Currency devaluation and revaluation primarily affect the economy’s current account and have secondary effects on
domestic employment and inflation.
a.
True
b.
False
True
Moderate
64. Fiscal and monetary policies are generally used to combat domestic recession and inflation and have secondary effects
on the balance of payments.
a.
True
b.
False
True
Moderate
False
Moderate
65. The Group of five (G–5) nations include Japan, Germany, China, and Australia.
a.
True
b.
False
66. The Bonn Summit of 1978 and Plaza Accord of 1985 are examples of international policy coordination.
a.
True
b.
False
True
Easy
67. International policy coordination is plagued by differing national economic objectives, institutions, political climates,
and phases in the business cycle.
a.
True
b.
False
True
Moderate
68. The goals of the Plaza Agreement of 1985 were to combat protectionism in the U.S. Congress, promote world
economic expansion by stimulating demand in Germany and Japan, and to ease the burden of the U.S. debt service.
a.
True
b.
False
True
Moderate
False
Easy
69. What policy instrument should be used when demand-pull inflation exists?
70. What happens to the balance of payments under a fixed exchange rate system, when expansionary or contractionary
monetary policy is used?
71. Was the Plaza Agreement of 1985 a success?
72. What is international economic policy coordination?