Question 1

Show how a larger government budget deficit tends to lead to an appreciation of the currency.

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Question 2

Why is fiscal policy relatively ineffective if exchange rates are allowed to adjust to their equilibrium level?

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Question 3

Explain how a government budget's deficit and a current account deficit can be related.

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Question 4

If a government wanted a current account surplus, then a government budget deficit would be helpful in achieving that goal. Explain why this statement is true.

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Question 5

Show the effects of an expansionary monetary policy on interest rates, the exchange rate, the current account, the capital account, and aggregate demand.

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Question 6

A contractionary monetary policy will lead to lower real GDP and the price level when exchange rates are free to find their equilibrium. Explain why this is true.

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Question 7

How are lower interest rates caused by an expansionary monetary policy related to an increase in exports and a decrease in imports? What does this have to do with the level of aggregate demand?

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Question 8

Describe a consistent mix of monetary and fiscal policies for a country with a current account deficit and a problem with inflation.

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Question 9

Describe how an inconsistent policy affects the equilibrium level of output, the price level, interest rates, capital flows, and the exchange rate.

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Question 10

Describe what the term "J-curve" means. Why is this concept important?

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Quiz 17: Macroeconomic Policy and Floating Exchange Rates