Question : 19.6   Analyzing Policy Options for Reaching Internal and External Balance 1) : 1303670

 

 

19.6   Analyzing Policy Options for Reaching Internal and External Balance

 

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

A) amount of aggregate demand.

B) home price level set by IMF.

C) current account balance.

D) government tax policy.

E) foreign interest rates.

 

2) The current account surplus is

A) an increasing function of disposable income and an increasing function of the real exchange rate.

B) a decreasing function of disposable income and a decreasing function of the real exchange rate.

C) a decreasing function of disposable income and an increasing function of the real exchange rate.

D) only a decreasing function of disposable income.

E) only an increasing function of the real exchange rate.

 

 

3) Under fixed exchange rates

A) monetary policy is not an effective policy.

B) fiscal policy is not an effective policy.

C) monetary policy and fiscal policy are not effective.

D) both monetary and fiscal policies are effective.

E) monetary policy has an unpredictable effect on the domestic money supply.

 

 

4) Under fixed exchange rates, domestic asset transactions by the central bank

A) can be used to alter the level of foreign reserves but not to affect the state of employment and output.

B) cannot be used to alter the level of foreign reserves but only to affect the state of employment and output.

C) can be used to alter the level of foreign reserves and to affect the state of employment and output.

D) can be used to alter the domestic money supply and the level of foreign reserves.

E) can raise output to full-employment level.

 

 

5) The XX schedule shows how much

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.

 

6) The current account surplus

A) is a decreasing function of disposable income and an increasing function of the real exchange rate.

B) is an increasing function of disposable income and an increasing function of the real exchange rate.

C) is an increasing function of disposable income and a decreasing function of the real exchange rate.

D) is a decreasing function of disposable income and a decreasing function of the real exchange rate.

E) is an increasing function of disposable income and a decreasing function of aggregate demand.

 

 

7) Fiscal expansion

A) stimulates aggregate demand and causes output to decline.

B) decreases aggregate demand and causes output to decline.

C) stimulates aggregate demand and causes output to rise.

D) decreases aggregate demand and causes output to rise.

E) decreases government expenditures.

 

 

8) A devaluation of the home currency

A) makes foreign goods and services cheaper relative to those sold at home.

B) makes domestic goods and services more expensive relative to those sold abroad.

C) decreases demand and output.

D) increases demand for domestic goods and services.

E) increases output and makes domestic goods and services cheaper relative to those sold abroad.

 

 

9) An attempt by a central bank to alter the money supply by buying or selling domestic assets

A) will leave both domestic money supply and foreign reserves unchanged.

B) will cause an offsetting change in aggregate demand.

C) will lead to a rise in domestic employment and output.

D) will lead to a decrease in domestic employment and output.

E) will cause an offsetting change in foreign reserves and leave the domestic money supply unchanged.

 

10) An expenditure-changing policy

A) alters the direction of the economy’s total demand for goods and services.

B) alters the level of the economy’s total demand for goods and services.

C) has no effect on aggregate demand.

D) is the same thing as an expenditure-switching policy.

E) affects aggregate supply but not aggregate demand.