Deck 18: Open-Economy Macroeconomics: Adjustment Policies

Question 1

To correct unemployment from a condition of external balance,a nation will usually have to use:

A)expansionary fiscal policy only
B)easy monetary policy only
C)expansionary fiscal policy and easy monetary policy
D)expansionary fiscal policy and tight monetary policy

Answer 1

D

Question 2

To correct a balance of payments surplus and unemployment a nation requires a:

A)devaluation and expansionary fiscal and monetary policies
B)devaluation and contractionary fiscal and monetary policies
C)devaluation or revaluation and expansionary fiscal and monetary policies
D)revaluation and either expansionary or contractionary fiscal and monetary policies

Answer 2

C

Question 3

To correct a balance of payments deficit and inflation a nation requires:

A)contractionary fiscal policy and easy monetary policy
B)contractionary fiscal policy and tight monetary policy
C)expansionary fiscal policy and tight monetary policy
D)any of the above depending on the level of inflation and the size of the initial deficit

Answer 3

D

Question 4

To correct a balance of payments surplus and inflation a nation requires:

A)expansionary fiscal policy and easy monetary policy
B)contractionary fiscal policy and tight monetary policy
C)contractionary fiscal policy and easy monetary policy
D)expansionary fiscal policy and tight monetary fiscal policy

Question 5

Direct controls refer to:

A)tariffs,quotas,and other quantitative restrictions on the flow of international trade
B)restrictions on international capital flows
C)multiple exchange rates
D)all of the above

Question 6

To correct a balance of payments deficit and inflation a nation requires a:

A)devaluation and expansionary fiscal and monetary policies
B)devaluation and contractionary fiscal and monetary policies
C)devaluation or revaluation and contractionary fiscal and monetary policies
D)revaluation and either expansionary or contractionary fiscal and monetary policies

Question 7

The most important economic objective of industrial nations is:

A)external balance
B)internal balance
C)a reasonable rate of growth
D)an equitable distribution of income

Question 8

To correct a balance of payments deficit and unemployment a nation requires a:

A)devaluation and expansionary fiscal and monetary policies
B)devaluation and contractionary fiscal and monetary policies
C)devaluation and either expansionary or contractionary fiscal and monetary policies
D)revaluation and either expansionary or contractionary fiscal and monetary policies

Question 9

Points below internal balance line YY in the Swan diagram indicate:

A)a balance of payments deficit
B)a balance of payments surplus
C)unemployment
D)inflation

Question 10

If the BP curve is above the point of intersection of the IS and LM curves,the nation will:

A)have a balance of payments deficit at that level of income
B)have a balance of payments surplus at that level of income
C)be in recession
D)face inflation

Question 11

To correct unemployment and a balance of payments deficits with flexible exchange rates and imperfect capital mobility:

A)both fiscal and monetary policies are required
B)fiscal policy is required
C)monetary policy is required
D)either monetary or fiscal policy is required

Question 12

In a world of perfectly elastic international capital flows and fixed exchange rates:

A)fiscal policy is completely ineffective
B)monetary policy is completely ineffective
C)both fiscal and monetary policies are completely ineffective
D)both fiscal and monetary policies are effective

Question 13

In order to achieve internal and external balance simultaneously,a nation must usually use at least:

A)one policy
B)two policies
C)three policies
D)cannot say

Question 14

The IS curve is negatively inclined because:

A)the higher is the rate of interest the smaller is the quantity of money demanded for speculative purposes
B)higher rates of interest lead to greater capital flows
C)at lower interest rates the levels of investment and national income are higher
D)at lower interest rates the level of national income is lower

Question 15

To correct a balance of payments surplus and inflation a nation requires a:

A)devaluation and expansionary fiscal and monetary policies
B)devaluation and contractionary fiscal and monetary policies
C)devaluation and either expansionary or contractionary fiscal and monetary policies
D)revaluation and either expansionary or contractionary fiscal and monetary policies

Question 16

To achieve external balance and correct a recession,a nation will always have to use tight monetary policy if at the full employment level of national income the nation's
BP curve is:

A)above the LM curve
B)below the LM curve
C)steeper than the LM curve
D)above the IS curve