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Quiz 10 Chapter 16 and 17
MACROECONOMIC POLICY IN AN OPEN
ECONOMY
MULTIPLE CHOICE
1. A
nation experiences internal balance if it achieves:
a. Full employment
b. Price stability
c. Full employment and price stability
d. Unemployment and price instability
2. A
nation experiences external balance if it achieves:
a. No net changes in its international
gold stocks
b. Productivity levels equal to those of
its trading partners
c. An increase in its money supply equal
to increases overseas
d. Equilibrium in its balance of payments
3. A
nation experiences overall balance if it achieves:
a. Balance-of-payments equilibrium, full
employment, and price stability
b. Balance-of-payments equilibrium,
maximum productivity, and price stability
c. Full employment, price stability and no
change in its money supply
d. Full employment, price stability, and
maximum productivity
4. Most
industrial countries generally considered ____ as the most important economic
goal.
a. External balance
b. Internal balance
c. Maximum efficiency for business
d. Maximum efficiency for labor
5. Which
policies are expenditure-changing policies?
a. Currency devaluation and revaluation
b. Import quotas and tariffs
c. Monetary and fiscal policy
d. Wage and price controls
6. Which
policy is an expenditure-switching policy?
a. Increase in the money supply
b. Decrease in government expenditures
c. Increase in business and household
taxes
d. Decrease in import tariffs
7. An
expenditure-increasing policy would consist of an increase in:
a. Import tariffs
b. Import quotas
c. Governmental taxes
d. The money supply
8. An
expenditure-reducing policy would consist of a decrease in:
a. The par value of a currency
b. Government expenditures
c. Import duties
d. Business or household taxes
9. Given
fixed exchange rates, assume Mexico initiates expansionary monetary and fiscal
policies to combat recession. These policies will also:
a. Increase both imports and exports
b. Increase exports and reduce imports
c. Reduce a balance-of-payments surplus
d. Reduce a balance-of-payments deficit
10. Given
fixed exchange rates, assume Mexico initiates contractionary monetary and
fiscal policies to combat inflation. These policies will also:
a. Reduce a balance-of-payments surplus
b. Reduce a balance-of-payments deficit
c. Increases both imports and exports
d. Decrease both imports and exports
11. The
appropriate expenditure-switching policy to correct a current account surplus
is:
a. Currency revaluation
b. Currency devaluation
c. Expansionary monetary policy
d. Contractionary fiscal policy
12. The
appropriate expenditure-switching policy to correct a current account deficit
is:
a. Contractionary monetary policy
b. Expansionary fiscal policy
c. Currency devaluation
d. Currency revaluation
13. Suppose
the United States faces domestic recession and a current account deficit.
Should the United States devalue the dollar, one would expect the:
a. Recession to become less
severe--deficit to become less severe
b. Recession to become more
severe--deficit to become less severe
c. Recession to become less
severe--deficit to become more severe
d. Recession to become more
severe--deficit to become more severe
14. Suppose
the United States faces domestic inflation and a current account surplus.
Should the United States revalue the dollar, one would expect the:
a. Inflation to become more
severe--surplus to become less severe
b. Inflation to become less
severe--surplus to become less severe
c. Inflation to become less severe--surplus
to become more severe
d. Inflation to become more
severe--surplus to become more severe
15. Suppose
Brazil faces domestic recession and a current account surplus. Should Brazil
revalue its currency, one would expect the:
a. Recession to become less
severe--surplus to become less severe
b. Recession to become more
severe--surplus to become more severe
c. Recession to become more
severe--surplus to become less severe
d. Recession to become less
severe--surplus to become more severe
16. Suppose
that Brazil faces domestic inflation and a current account deficit. Should
Brazil devalue its currency, one would expect the:
a. Inflation to become more
severe--deficit to become less severe
b. Inflation to become more
severe--deficit to become more severe
c. Inflation to become less
severe--deficit to become less severe
d. Inflation to become less
severe--deficit to become more severe
17. In
a closed economy, which of the following will cause the economy's aggregate
demand curve to shift to the right?
a. decreases and wages and salaries paid
to employees
b. increases in the prices of oil and
natural gas
c. decreases in income taxes for
households
d. decreases in the productivity of labor
18. 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
a. cause aggregate demand to increase,
thus strengthening the policy's expansionary effect on real output
b. cause aggregate demand to decrease,
thus eliminating the policy's expansionary effect on real output
c. have conflicting effects on aggregate
demand, thus weakening the policy's expansionary effect on real output
d. have conflicting effects on aggregate demand,
thus strengthening the policy's expansionary effect on real output
19. A
problem that economic policy makers confront when attempting to promote both
internal and external balance for the nation is that monetary or fiscal
policies aimed at the domestic sector also have impacts on:
a. Trade flows only
b. Capital flows only
c. both trade flows and capital flows
d. Neither trade flows nor capital flows
20. Given
an open economy with high capital mobility and floating exchange rates, suppose
an expansionary fiscal policy is implemented to combat recession. The initial
and secondary effects of the policy
a. cause aggregate demand to increase,
thus strengthening the policy's expansionary effect on real output
b. cause aggregate demand to decrease,
thus eliminating the policy's expansionary effect on real output
c. have conflicting effects on aggregate
demand, thus weakening the policy's expansionary effect on real output
d. have conflicting effects on aggregate
demand, thus strengthening the policy's expansionary effect on real output
21. A
system of fixed exchange rates and high capital mobility strengthens which
policy in combating a recession:
a. Expansionary fiscal policy
b. Expansionary monetary policy
c. Contractionary fiscal policy
d. Contractionary monetary policy
22. A
system of floating exchange rates and high capital mobility strengthens which
policy in combating a recession:
a. Expansionary fiscal policy
b. Expansionary monetary policy
c. Contractionary fiscal policy
d. Contractionary monetary policy
23. Given
an open economy with high capital mobility, all of the following statements are
true except:
a. fiscal policy is strengthened under
fixed exchange rates
b. monetary policy is weakened under fixed
exchange rates
c. monetary policy is strengthened under
floating exchange rates
d. fiscal policy is strengthened under
floating exchange rates
24. Under
a system of managed-floating exchange rates with heavy exchange rate
intervention:
a. Fiscal policy is successful in
promoting internal balance, while monetary policy is unsuccessful
b. Monetary policy is successful in
promoting internal balance, while fiscal policy is unsuccessful
c. Both fiscal policy and monetary policy
are successful in promoting internal balance
d. Neither fiscal policy nor monetary
policy are successful in promoting internal balance
25. Given
a system of floating exchange rates, an expansionary monetary policy by the
Federal Reserve will cause
a. the dollar to appreciate and will
decrease U.S. net exports
b. the dollar to appreciate and will
increase U.S. net exports
c. the dollar to depreciate and will
increase U.S. net exports
d. the dollar to depreciate and will
decrease U.S. net exports
26. Given
a system of floating exchange rates, a contractionary monetary policy by the
Federal Reserve will cause
a. the dollar to appreciate and will
decrease U.S. net exports
b. the dollar to appreciate and will
increase U.S. net exports
c. the dollar to depreciate and will
increase U.S. net exports
d. the dollar to depreciate and will
decrease U.S. net exports
27. All
of the following are obstacles to international economic policy coordination
except:
a. Different national objectives and
institutions
b. Different national political climates
c. Different phases in the business cycle
d. Different national currencies
28. Suppose
a central bank prevents a depreciation of its currency by intervening in the
foreign exchange market and buying its currency with foreign currency. This
causes the
a. domestic money supply to decrease and a
decline in aggregate demand
b. domestic money supply to increase and a
decline in aggregate demand
c. domestic money supply to decrease and a
rise in aggregate demand
d. domestic money supply to increase and a
rise in aggregate demand
29. At
the ____, the Group-of-Five nations agreed to intervene in the currency markets
to promote a depreciation in the U.S. dollar's exchange value.
a. Plaza Agreement of 1985
b. Louvre Accord of 1987
c. Bonn Summit of 1978
d. Tokyo Summit of 1962
30. The
Plaza Agreement of 1985 and Louvre Accord of 1987 are examples of:
a. Tariff trade barrier formation
b. Nontariff trade barrier formation
c. International economic policy
coordination
d. Beggar-thy-neighbor policies
Exhibit
16.1
At the
Plaza Accord of 1985, the Group-of-Five nations agreed to drive the value of
the dollar downward (i.e., depreciation) so as to help reduce the U.S. trade
deficit. Answer the following question(s) on the basis of this information.
31. Refer
to Exhibit 16.1. To help drive the dollar's exchange value downward, the
Federal Reserve would:
a. Reduce taxes
b. Increase taxes
c. Decrease the money supply
d. Increase the money supply
32. Refer
to Exhibit 16.1. The Federal Reserve might refuse to support the accord on the
grounds that when helping to drive the dollar's exchange value downward, it
promotes an increase in the U.S.:
a. Rate of inflation
b. Budget deficit
c. Unemployment level
d. Economic growth rate
33. Under
a fixed exchange-rate system and high capital mobility, an expansion in the
domestic money supply leads to:
a. Trade-account deficit and a
capital-account surplus
b. Trade-account deficit and a
capital-account deficit
c. Trade-account surplus and a capital-account
surplus
d. Trade-account surplus and a
capital-account deficit
34. Under
a fixed exchange-rate system and high capital mobility, a contraction in the
domestic money supply leads to a:
a. Trade-account deficit and a
capital-account surplus
b. Trade-account deficit and a
capital-account deficit
c. Trade-account surplus and a
capital-account surplus
d. Trade-account surplus and a
capital-account deficit
35. Under
a fixed exchange-rate system and high capital mobility, an expansionary fiscal policy
leads to a:
a. Trade-account deficit and a
capital-account surplus
b. Trade-account deficit and a
capital-account deficit
c. Trade-account surplus and a
capital-account surplus
d. Trade-account surplus and a
capital-account deficit
36. Under
a fixed exchange-rate system and high capital mobility, a contractionary fiscal
policy leads to a:
a. Trade-account deficit and a
capital-account surplus
b. Trade-account deficit and a
capital-account deficit
c. Trade-account surplus and a
capital-account surplus
d. Trade-account surplus and a
capital-account deficit
37. Suppose
a central bank prevents a depreciation of its currency by intervening in the
foreign exchange market and buying its currency with foreign currency. This
causes the
a. domestic money supply to decrease and a
decline in aggregate demand
b. domestic money supply to increase and a
decline in aggregate demand
c. domestic money supply to decrease and a
rise in aggregate demand
d. domestic money supply to increase and a
fall in aggregate demand
38. Suppose
a central bank prevents an appreciation of its currency by intervening in the
foreign exchange market and selling its currency for foreign currency. This
causes the
a. domestic money supply to decrease and a
decline in aggregate demand
b. domestic money supply to increase and a
decline in aggregate demand
c. domestic money supply to decrease and a
rise in aggregate demand
d. domestic money supply to increase and a
fall in aggregate demand
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
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
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
42. Direct
controls may take the form of
a. Tariffs
b. Export subsidies
c. Export quotas
d. All of the above
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
44. Policy
coordination is complicated by
a. Different economic objectives
b. Different national institutions
c. Different phases in the business cycle
d. All of the above
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