Deck 14: Adjustment Policies

Question 1

Which of the following is an example of an expansionary monetary policy?

A)Increase in the nation's money supply
B)Increased government expenditures
C)Reduction in taxes
D)Increase in Taxes

Answer 1

A

Question 2

Which of the following is a type of internal and external imbalance?

A)Inflation and recession
B)Recession and deficit
C)Deficit and surplus
D)Balance of Payment Problems

Answer 2

B

Question 3

Which of the following is not listed as a policy instruments that nations use to achieve internal and external balance?

A)Expenditure-changing policies
B)Expenditure-switching policies
C)Direct controls
D)Supply management policies

Answer 3

D

Question 4

Tariffs and quotas are used to restrict the flow of international trade and capital.These are examples of:

A)expenditure-changing policies
B)direct controls
C)expenditure-switching policies
D)indirect controls

Question 5

Which of the following represents a devaluation (or revaluation)of a nation's currency for the purpose of toggling the nation's expenditures between foreign and domestic goods?

A)Expenditure-changing policies
B)Direct controls
C)Expenditure-switching policies
D)None of the above

Question 6

Which of the following is concerned with changing the aggregate demand of the nation?

A)Internal balance
B)Expenditure-changing policies
C)External balance
D)Expenditure-switching policies

Question 7

What effect do expansionary monetary and fiscal policies have on the economy?

A)They reduce the severity of recessions
B)They increase balance-of-payment surpluses
C)They tend to decrease deficits
D)They may take the economy into recession

Question 8

Which statement is true?

A)Expansionary fiscal policy improves the BOP in the short run,and is reinforced further by expansionary monetary policy
B)Expansionary fiscal policy improves the BOP in the short run,while expansionary monetary policy deteriorates it
C)Expansionary monetary policy improves the BOP in the long run,while fiscal policy has no effect
D)Expensionary fiscal policy deteriorates the BOP in the short run while Expensionary monetary policy improves it

Question 9

To achieve external balance under a fixed exchange rate system,what policies should be used?

A)Monetary policies
B)Expenditure-switching policies
C)Fiscal policies
D)A combination of each of the above

Question 10

Which of the following is concerned with full employment combined with price stability?

A)Internal balance
B)Expenditure-changing policies
C)External balance
D)Expenditure-switching policies

Question 11

Which of the following is not discussed in the book as one of the important national economic goal or objectives?

A)Internal balance
B)A reasonable growth rate
C)An equitable distribution of income
D)A strong defense mechanism

Question 12

What is the correct order of events following an expansionary monetary policy with a fixed exchange rate?

A)Interest rate falls,investment and income rise,current account worsens,overall balance-of-payment worsens
B)Interest rate falls,capital account improves,money supply falls in order to maintain fixed exchange rate
C)Capital flows out,interest rate falls,overall balance-of-payments worsens
D)interest rate increases,capital flows in and balance-of-payment improves

Question 13

What is the correct order of events following an expansionary fiscal policy with a fixed exchange rate?

A)Interest rates rise,overall balance-of-payments may improve,money supply falls to defend fixed exchange rate
B)Production and income rise,money supply falls to defend fixed exchange rate,capital flows in
C)Interest rate rises,capital flows in,overall balance-of-payments may improve,money supply rises to defend fixed exchange rate
D)Production and income rise,money supply falls to defend fixed exchange rate,overall balance-of-payments may improve

Question 14

To achieve internal balance under a fixed exchange rate system,what policies should be used?

A)Expenditure-changing policies
B)Devaluation policies
C)Revaluation polices
D)Expenditure-switching policies

Question 15

Which of the following is not one of the most important economic goals or objectives of nations?

A)External balance
B)An adequate protection of the environment
C)An equitable distribution of income
D)They are all equally important

Question 16

Which of the following is an indicator of a contractionary fiscal policy?

A)Reduced money supply
B)Reduced government expenditures
C)Reduction in taxes
D)Trade restrictions

Question 17

According to Jan Tinbergen,the 1996 Nobel Prize winner,a nation should have:

A)Half as many effective policy instruments for use,as the number of objectives it wants to achieve
B)Twice as many effective policy instruments for use than the number of objectives it wants to achieve
C)Just as many effective policy instruments for use as the number of independent objectives it wants to achieve
D)Just one policy instruments to use to achieve all the objectives it wants to pursue

Question 18

Which of the following is an expansionary fiscal policy?

A)Increased government expenditures
B)Increased money supply
C)Reduction in taxes
D)Both a & b

Question 19

Which of the following is concerned with equilibrating a nation's balance of payments?

A)Internal balance
B)Expenditure-changing policies
C)External balance
D)Expenditure-switching policies

Question 20

By direct controls we mean all of the following except?

A)Tariffs
B)Quotas
C)Taxes
D)Voluntary Export Restrains

Question 21

Which of the following is an organization that works towards international economic development?

A)GAB
B)OECD
C)GSP
D)OPEC

Question 22

What objectives do nations undertake when facing cost-push inflation?

A)Full employment
B)Balance-of-payments equilibrium
C)Price stability
D)All of the above

Question 23

Which of the following is an example of an exchange control?

A)Restrictions on international capital flows
B)Intervention in forward markets
C)Multiple exchange rates
D)All of the above

Question 24

The longest boom on record for the US took place during which decade?

A)1990s
B)1980s
C)1970s
D)1960s

Question 25

Which of the following is true under flexible exchange rates?

A)Expansionary monetary policy leads to an appreciation of the domestic currency
B)Expansionary fiscal policy reduces interest rate
C)Expansionary monetary policy is very effective in increasing income and production
D)Fiscal policy is very effective in increasing income and production

Question 26

During 1997 to 2000,interest rates were kept higher in the US while some countries like Germany lowered their interest rate,during this period all of the following happened in the US market except

A)There was huge financial inflows in the US economy
B)The US enjoyed rapid economic growth
C)Dollar kept on appreciating
D)US was accumulating a trade surplus

Question 27

What actions should be taken under the internal-external imbalance of recession and deficit?

A)Expansionary fiscal policy to correct for the deficit,and expansionary monetary policy to correct for the recession
B)Expansionary fiscal policy to correct for recession,and contractionary monetary policy to correct for deficit
C)Contractionary fiscal policy to correct for the recession,and expansionary monetary policy to correct for deficit
D)Contractionary fiscal policy to correct for the deficit,and contractionary monetary policy to correct for the recession

Question 28

What are the effects of running a high budget surplus,as Japan does? A.Low interest rates,compared to those abroad
B)Large capital inflows
C)Overvaluation of the yen
D)Large trade deficits

Question 29

Which of the following is not one of the consequences of running a high budget surplus,as Japan does? A.Low interest rates in Japan,compared to those abroad
B)Large capital outflows
C)Undervaluation of the yen
D)Low interest rate in the US compared to Japan

Question 30

What are the effects of running a high budget deficit,as the US does? A.High interest rates,compared to those abroad
B)Large capital Outflows
C)Overvaluation of the dollar
D)Both A and C

Question 31

What is the correct order of events following an expansionary monetary policy with a flexible exchange rate?

A)Interest rate falls,investment and income rise,current account worsens
B)Currency depreciates,income rises more,current account improves
C)Current account worsens,interest rate falls,investment and income rise
D)Capital flows out,interest rate falls,currency depreciates

Question 32

What is the correct order of events following an expansionary fiscal policy with a fixed exchange rate?

A)Currency may appreciate,capital flows in,interest rate rises
B)Production and income rise,current account worsens,currency may appreciate
C)Capital flows in,income expansion is reduced,currency may appreciate
D)Interest rate rises,current account worsens,production and income rise

Question 33

Under a flexible exchange rate system,which policies can be used to achieve internal balance?

A)Monetary policies alone
B)Fiscal policies alone
C)Neither monetary nor fiscal policies
D)Both monetary and fiscal policies

Question 34

What actions should be taken under the internal-external imbalance of inflation and surplus?

A)Expansionary fiscal policy to correct for excess surplus,and expansionary monetary policy to correct for inflation
B)Expansionary fiscal policy to correct for inflation,and contractionary monetary policy to correct for surplus
C)Contractionary fiscal policy to correct for inflation,and expansionary monetary policy to correct for surplus
D)Contractionary fiscal policy to correct for excess surplus,and contractionary monetary policy to correct for inflation

Question 35

What actions should be taken under the internal-external imbalance of inflation and surplus? A.Expansionary fiscal policy to correct for excess deficit,and expansionary monetary policy to correct for inflation
B)Expansionary fiscal policy to correct for inflation,and contractionary monetary policy to correct for deficit
C)Contractionary fiscal policy to correct for inflation,and expansionary monetary policy to correct for deficit
D)Contractionary fiscal policy to correct for excess inflation,and contractionary monetary policy to correct for deficit

Question 36

Inflation resulting from an oil price shock is classified as which of the following?

A)Demand-pull inflation
B)Supply-push inflation
C)Cost-push inflation
D)Price-pull inflation

Question 37

What are the effects of running a high budget deficit,as the US does?

A)Low interest rates,compared to those abroad
B)Large capital outflows
C)Overvaluation of the dollar
D)Small trade deficits

Question 38

What actions should be taken under the internal-external imbalance of recession and surplus?

A)Expansionary fiscal policy to correct for recession,and expansionary monetary policy to correct for surplus
B)Expansionary fiscal policy to correct for surplus,and contractionary monetary policy to correct for recession
C)Contractionary fiscal policy to correct for recession,and expansionary monetary policy to correct for surplus
D)Contractionary fiscal policy to correct for excess surplus,and contractionary monetary policy to correct for recession

Question 39

Which of the following is true under fixed exchange rates?

A)Monetary policy is totally ineffective
B)Fiscal policy is totally ineffective
C)Expansionary monetary policy improves overall balance-of-payment situation
D)Expansionary fiscal policy reduces the interest rate

Question 40

Which of the following is a restriction on international capital flow and multiple exchange rates?

A)Export control
B)Trade control
C)Price control
D)Wage control

Question 41

A devaluation switches expenditures from foreign to domestic commodities and can be used to correct a deficit in the nation's balance-of-payments.

Question 42

Fiscal policy is utterly useless under a fixed exchange rate policy.

Question 43

Recession and inflation are the two types of internal imbalance.

Question 44

Describe why monetary policy under a fixed exchange rate system is impotent.

Question 45

In terms of their effect,how are the direct controls like tariffs and export subsidies different from say currency devaluation or depreciation?

Question 46

Internal balance refers to the objective of full employment with price stability.

Question 47

Multiple exchange rates are the different exchange rates often enforced by developing nations for each class of exports.

Question 48

Why during the period of fixed exchange rate,monetary policy is considered to be ineffective.

Question 49

The current account deficit and the budget deficit move together; therefore,the budget deficit can be used to fully explain the account deficit.

Question 50

External balance is usually a nation's most important economic objective.

Question 51

A revaluation switches expenditures from foreign to domestic commodities and can be used to correct a deficit in the nation's balance-of-payments

Question 52

As opposed to quotas,VERs are not direct controls since they are voluntary by nature and not actually imposed by the country to which the good or service is being exported.

Question 53

Monetary policy is very effective under a fixed exchange rate policy.

Question 54

It is recommended that the US allow the dollar to continue to depreciate in order to reduce the size of the trade deficit.