Exam 24: Floating Exchange Rates and Internal Balance

Suppose the government of the United States has instituted an expansionary fiscal policy to boost aggregate output. The United States has a floating exchange rate regime and there is a high degree of capital mobility. a.If the exchange rate value of the dollar remains steady, what are the effects of the expansionary fiscal policy on the U.S.national product and income? What is the effect on the U.S.unemployment rate? Explain. b.Following the fiscal expansion, what is the likely pressure on the exchange rate value of the dollar? Explain. c.What are the implications of the change in the exchange rate value of the pound for U.S.national product and unemployment? Does the exchange rate change tend to reinforce or counteract the expansionary thrust of U.S.fiscal policy? Explain.

Which of the following are accurate findings of recent studies about the effectiveness of intervention activities?

The figure given below depicts the IS-LM-FE model with floating exchange rates. The domestic currency:

For a country with a floating exchange rate and, initially, an overall payments balance of zero, if the country implements expansionary monetary policy, the LM curve will shift to the _____ which will lead to the country's currency to __________.

Under a floating exchange rate regime with a high degree of capital mobility, in the short run an expansionary fiscal policy will most likely create pressure on:

Coordinated intervention, in which more than one central bank intervenes to influence an exchange rate, is usually more effective than an intervention carried out by one country of the same total size.

Using a flow chart, illustrate the effects of a decrease in government spending (G) in a country with floating exchange rates and highly mobile international capital.

With floating exchange rates, the negative effects of international trade shocks on internal balance are worsened by the effects of the resulting change in the exchange rate.

Expansionary fiscal policy leads to higher domestic interest rates.

International trade shocks are more disruptive with fixed exchange rates than with floating exchange rates.

Larger interventions to stabilize a currency are usually more effective than smaller interventions.

Under a floating exchange rate regime with a low degree of capital mobility, an expansionary fiscal policy will most likely create pressure on:

Floating exchange rates ensure:

Under a floating exchange rate regime, an expansion in the money supply will:

Which of the following statements is true?

Everything else remaining unchanged, the effect of domestic spending shocks on a country with a floating exchange rate differs depending on:

Other fundamental things equal, an increase in the exchange rate value of the domestic currency will cause the current account to:

One way that quantitative easing can work is through depreciation of the country's currency.

At which of the following did the United States agree to implement policies to reduce U.S. inflation and reduce oil imports?

At which of the following did the major countries of the world agree to intervene in the foreign exchange markets to lower the value of the U.S. dollar?