Question 1

Which of the following does NOT occur if Home starts a policy of permanent fiscal expansion:

Accepted Answer

A)  Home's exchange rate increases. 
B)  Foreign's interest rate rises. 
C)  Home output rises. 
D)  Foreign output rises. 
E)  Current Account Balance increases. 
A)  Home's exchange rate increases. 
B)  Foreign's interest rate rises. 
C)  Home output rises. 
D)  Foreign output rises. 
E)  Current Account Balance increases.

Question 2

The XX schedule shows how much

Accepted Answer

A)  fiscal expansion is needed to hold the current account surplus at X as the currency is devalued by a given amount. 
B)  monetary expansion is needed to hold the current account surplus at X as the currency is devalued by a given amount. 
C)  fiscal expansion is needed to hold the current account surplus at X as the currency is evaluated by a given amount. 
D)  fiscal and monetary expansions are needed to hold the current account surplus at X as the currency is devalued by a given amount. 
E)  foreign funding is needed to hold the current account surplus at X as the currency is devalued by a given amount. 
A)  fiscal expansion is needed to hold the current account surplus at X as the currency is devalued by a given amount. 
B)  monetary expansion is needed to hold the current account surplus at X as the currency is devalued by a given amount. 
C)  fiscal expansion is needed to hold the current account surplus at X as the currency is evaluated by a given amount. 
D)  fiscal and monetary expansions are needed to hold the current account surplus at X as the currency is devalued by a given amount. 
E)  foreign funding is needed to hold the current account surplus at X as the currency is devalued by a given amount.

Question 3

The AA schedule shows

Accepted Answer

A)  interest rate and output pairs at which the foreign exchange market and the domestic money market are in equilibrium. 
B)  exchange rate and output pairs at which the foreign exchange market and the domestic money market are in equilibrium. 
C)  interest rate and output pairs at which only the foreign exchange market is in equilibrium. 
D)  exchange rate and output pairs at which only the foreign exchange market is in equilibrium. 
E)  exchange rate and output pairs at which only the domestic money market are in equilibrium. 
A)  interest rate and output pairs at which the foreign exchange market and the domestic money market are in equilibrium. 
B)  exchange rate and output pairs at which the foreign exchange market and the domestic money market are in equilibrium. 
C)  interest rate and output pairs at which only the foreign exchange market is in equilibrium. 
D)  exchange rate and output pairs at which only the foreign exchange market is in equilibrium. 
E)  exchange rate and output pairs at which only the domestic money market are in equilibrium.

Question 4

Coordination of economic policies among nations is a prisoner's ________ because if all countries go it alone, they will choose to ________.

Accepted Answer

A)  dilemma; compete 
B)  conundrum; cooperate 
C)  sentence; compete 
D)  dilemma; cooperate 
E)  quandary; collude 
A)  dilemma; compete 
B)  conundrum; cooperate 
C)  sentence; compete 
D)  dilemma; cooperate 
E)  quandary; collude

Question 5

Present the case for floating exchange rates.

Accepted Answer

(1) Monetary policy autonomy - Governmen

Question 6

Using the II-XX framework, show using a figure that fiscal policies by themselves cannot bring the economy to both internal and external balances.

Accepted Answer

Starting at point 2, fiscal policy is sh

Question 7

Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?

Accepted Answer

A)  monetary policy oriented towards domestic goals 
B)  exchange rate instability 
C)  tariffs and subsidies 
D)  restrictions on the migration of labor 
E)  global inflation 
A)  monetary policy oriented towards domestic goals 
B)  exchange rate instability 
C)  tariffs and subsidies 
D)  restrictions on the migration of labor 
E)  global inflation

Question 8

(a) Assume that R denotes the domestic interest rate and R   denotes the foreign interest rate. Under a fixed exchange rate what is the relation between R and R   (b) Assume E denotes the domestic currency price of the dollar for a country which is not the United States. If one wants to analyze only the short-run effects of a policy, what does one assume about the Home and Foreign price levels, P and P   , respectively.
(c) Assume that there is no ongoing balance of payment crisis. What does this assumption really assume?
(d) Assume a fixed exchange rate system. What does this tell you about E?
(e) Under the above assumptions what are the conditions for internal balance?
(f) How would your answer to Part D above change if P   is unstable due to foreign inflation.
(g) Given the definitions above, how would one define the real exchange rate?
(h) Write the condition for internal balance.
(i) Define the variable not defined before in Part G above.
(j) Using the equation for internal balance derived above, given our assumptions analyze the effects of a fiscal expansion.
(k) What would happen if the government of that country, which is not the United States under Bretton Woods, decides to devaluate its currency?
(l) What would happen if the government of that country, which is not the United States under Bretton Woods, decides to use monetary policy rather than fiscal policy?
(m) Given all of the above, what is the relation between the exchange rate, E, and fiscal ease, i.e., an increase in G or a reduction in T?
(n) Assume that the economy is at internal balance. What will happen if G goes up for a given level of E?
(o) Assume that the economy is at internal balance. What will happen if G goes down for a given level of E?

Accepted Answer

(a) R = R @#IMG-DLM& (b) Constant prices.
(c) That

Question 9

Governments prefer to avoid excessive current account surpluses because

Accepted Answer

A)  the returns to domestic savings are more difficult to tax than those on assets abroad. 
B)  an addition to the home capital stock may increase domestic unemployment and therefore lead to higher national income. 
C)  foreign investment in one firm may have beneficial technological spillover effects on other foreign producers that the investing firm does not capture. 
D)  an addition to the home capital stock may reduce domestic unemployment and therefore lead to higher national income. 
E)  domestic savings increase with more investment abroad. 
A)  the returns to domestic savings are more difficult to tax than those on assets abroad. 
B)  an addition to the home capital stock may increase domestic unemployment and therefore lead to higher national income. 
C)  foreign investment in one firm may have beneficial technological spillover effects on other foreign producers that the investing firm does not capture. 
D)  an addition to the home capital stock may reduce domestic unemployment and therefore lead to higher national income. 
E)  domestic savings increase with more investment abroad.

Question 10

Advocates of floating rate suggested it is favorable for economies for all of the following reasons EXCEPT

Accepted Answer

A)  it discourages attack from foreign exchange speculators because of the fact that exchange rate adjustment is immediate. 
B)  it helps stabilize the shock effect on unemployment in case of economic changes such as a fall in export demand. 
C)  it automatically matches the domestic inflation with ongoing foreign inflation. 
D)  it gives every country the opportunity to guide its own monetary conditions at home. 
E)  it brings the LR exchange rate to the level predicted by PPP without government policy decisions. 
A)  it discourages attack from foreign exchange speculators because of the fact that exchange rate adjustment is immediate. 
B)  it helps stabilize the shock effect on unemployment in case of economic changes such as a fall in export demand. 
C)  it automatically matches the domestic inflation with ongoing foreign inflation. 
D)  it gives every country the opportunity to guide its own monetary conditions at home. 
E)  it brings the LR exchange rate to the level predicted by PPP without government policy decisions.

Question 11

Use a figure below to describe the four zones of economic discomfort.

Accepted Answer

The answer

Question 12

By the end of the 1960s, many countries felt that they were importing inflation from

Accepted Answer

A)  the United States. 
B)  Germany. 
C)  France. 
D)  Japan. 
E)  the United Kingdom. 
A)  the United States. 
B)  Germany. 
C)  France. 
D)  Japan. 
E)  the United Kingdom.

Question 13

When the exchange rate, E, and the foreign price level, P*, is fixed, domestic inflation depends primarily on

Accepted Answer

A)  amount of aggregate demand. 
B)  home price level set by IMF. 
C)  current account balance. 
D)  government tax policy. 
E)  foreign interest rates. 
A)  amount of aggregate demand. 
B)  home price level set by IMF. 
C)  current account balance. 
D)  government tax policy. 
E)  foreign interest rates.

Which of the following does NOT occur if Home starts a policy of permanent fiscal expansion:

The XX schedule shows how much

The AA schedule shows

Coordination of economic policies among nations is a prisoner's because if all countries go it alone, they will choose to .

Present the case for floating exchange rates.

Using the II-XX framework, show using a figure that fiscal policies by themselves cannot bring the economy to both internal and external balances.

Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?

Governments prefer to avoid excessive current account surpluses because

Advocates of floating rate suggested it is favorable for economies for all of the following reasons EXCEPT

Use a figure below to describe the four zones of economic discomfort.

By the end of the 1960s, many countries felt that they were importing inflation from

When the exchange rate, E, and the foreign price level, P*, is fixed, domestic inflation depends primarily on

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

Exam 19: International Monetary Systems: an Historical Overview

Which of the following does NOT occur if Home starts a policy of permanent fiscal expansion:

The XX schedule shows how much

The AA schedule shows

Coordination of economic policies among nations is a prisoner's ________ because if all countries go it alone, they will choose to ________.

Present the case for floating exchange rates.

Using the II-XX framework, show using a figure that fiscal policies by themselves cannot bring the economy to both internal and external balances.

Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?

Governments prefer to avoid excessive current account surpluses because

Advocates of floating rate suggested it is favorable for economies for all of the following reasons EXCEPT

Use a figure below to describe the four zones of economic discomfort.

By the end of the 1960s, many countries felt that they were importing inflation from

When the exchange rate, E, and the foreign price level, P*, is fixed, domestic inflation depends primarily on

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

Coordination of economic policies among nations is a prisoner's because if all countries go it alone, they will choose to .