Question :
17.12 The Liquidity Trap
1) If a country’s nominal interest rate : 1303640
17.12 The Liquidity Trap
1) If a country’s nominal interest rate is zero, then
A) the country’s economy is in a liquidity trap.
B) exchange rates with other countries are likely to decline.
C) exchange rates with other countries are likely to increase.
D) monetary policy is likely to be very effective in stimulating the economy.
E) the country’s economy has achieved monetary equilibrium.
2) When an economy is in a liquidity trap
A) monetary policy cannot be used to influence the exchange rate.
B) monetary policy can be used to drive interest rates down, but not to drive them up.
C) there is an excess demand for bonds.
D) people and institutions avoid holding cash balances.
E) it can escape only by introducing a hard, or illiquid, currency.
3) Which of the following is an example of an “unconventional monetary policy” by a central bank?
A) The purchase of specific categories of assets with new money.
B) The sale of long-term government bonds for foreign exchange.
C) the purchase of long-term government bonds using foreign exchange.
D) raising reserve requirements by commercial banks.
E) selling gold reserves.
4) If an economy is in a liquidity trap, then the nominal interest rate is ________ and the only effective policy that can be used to stimulate the economy is ________.
A) zero or negative; expansionary fiscal policy
B) zero or negative; expansionary monetary policy
C) high and rising; contractionary monetary policy
D) high and rising; expansionary monetary policy
E) high and rising; expansionary fiscal policy
17.13 Appendix 1 to Chapter 17: Intertemporal Trade and Consumption Demand
1) An intertemporal budget constraint
A) requires the present value of consumption to be equal to the present value of production.
B) requires total spending in each period to be equal to total consumption in each period.
C) does not take into account the ability to borrow or loan goods domestically.
D) categorizes income into permanent and temporary income.
E) limits consumption to the amount produced in each time period.
2) If consumers experience an increase in lifetime income, current spending will ________, current saving will ________, and future spending will ________.
A) increase; increase; increase
B) increase; decrease; decrease
C) increase; decrease; increase
D) increase; increase; decrease
E) decrease; increase; increase
3) If consumers experience an decrease in lifetime income, current spending will ________, current saving will ________, and future spending will ________.
A) decrease; decrease; decrease
B) increase; decrease; decrease
C) increase; decrease; increase
D) increase; increase; decrease
E) decrease; increase; increase
17.14 Appendix 2 to Chapter 17: The Marshall-Lerner Condition and Empirical
Estimates of Trade Elasticities
1) One implication of an empirical investigation of the Marshall-Lerner condition is that, in the ________, a real ________ in a nation’s currency is likely to ________ the country’s current account balance.
A) long-run; depreciation; improve
B) short-run; depreciation; improve
C) long-run; appreciation; improve
D) short-run; appreciation; improve
E) short-run but not the long-run; appreciation; improve
2) The Marshall-Lerner condition holds that a country’s current account balance will ________ in response to a real ________ in a nation’s currency if ________.
A) improve; depreciation; sum of the price elasticities of export and import demand exceeds 1
B) worsen; depreciation; sum of the price elasticities of export and import demand exceeds 1
C) improve; appreciation; sum of the price elasticities of export and import demand exceeds 1
D) improve; appreciation; sum of the price elasticities of export and import demand exceeds 0
E) worsen; depreciation; sum of the price elasticities of export and import demand exceeds 0
3) A real depreciation of a nation’s currency gives rise to the ________ effect and the ________ effect on the current account.
A) volume; value
B) depletion; expansion
C) surplus; deficit
D) output; trade
E) price; profit
4) The Marshall-Lerner Condition states that, all else equal
A) nominal appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate.
B) real depreciation improves the current account if export and import volumes are sufficiently inelastic with respect to the real exchange rate.
C) real appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate.
D) real depreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate.
E) the sum of import and export elasticities must be equal to one in order for depreciation to occur.
