Question 1

Currency devaluation and revaluation primarily affect the economy's current account and have secondary effects on domestic employment and inflation.

Accepted Answer

Currency devaluation and revaluation impact the economy's balance of trade and current account through changes in exports and imports. This can lead to inflation and changes in employment levels domestically.

Question 2

International policy coordination is plagued by differing national economic objectives,institutions,political climates,and phases in the business cycle.

Accepted Answer

International policy coordination often faces challenges due to differences in national economic priorities, political systems, monetary institutions, and economic conditions. These divergent factors can make it difficult to develop and implement coordinated policies that serve the interests of all countries involved.

Question 3

Under floating exchange rates and high capital mobility,an expansionary monetary policy would help a country resolve a recession and a current account deficit.

Accepted Answer

An expansionary monetary policy can lead to a decrease in interest rates, which can cause an increase in investment and consumption spending, leading to an increase in aggregate demand and output. This increase in output can then lead to a decrease in unemployment and a decrease in the current account deficit as imports decrease and exports increase. Under floating exchange rates and high capital mobility, the exchange rate would adjust accordingly to maintain equilibrium in the market, so the expansionary monetary policy would not lead to an increase in inflation or a decrease in the value of the currency.

Question 4

Was the Plaza Agreement of 1985 a success?

Accepted Answer

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Question 5

Exchange rate management policies require international policy coordination because a depreciation of one nation's currency implies an appreciation of its trading partner's currency.

Accepted Answer

When one nation's currency depreciates, its exports become more competitive and imports become more expensive. This can lead to an increase in demand for the trading partner's currency, causing it to appreciate. This can have various impacts on their trade relationship, such as making the trading partner's exports more expensive and potentially decreasing their competitiveness. Thus, international policy coordination can be beneficial in managing exchange rate fluctuations and minimizing potential negative effects on trade relationships.

Question 6

What happens to the balance of payments under a fixed exchange rate system,when expansionary or contractionary monetary policy is used?

Accepted Answer

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Question 7

The goals of the Plaza Agreement of 1985 were to combat protectionism in the U.S.Congress,promote world economic expansion by stimulating demand in Germany and Japan,and to ease the burden of the U.S.debt service.

Accepted Answer

The Plaza Agreement of 1985 was a joint statement issued by the finance ministers and central bank governors of five major economies (United States, Germany, Japan, France, and the United Kingdom) that aimed to stabilize exchange rates by depreciating the value of the US dollar against other currencies. The goals stated in the statement were to combat protectionism in the U.S. Congress and to promote world economic expansion by stimulating demand in Germany and Japan. The agreement did not directly address the burden of the US debt service, although it indirectly helped by boosting economic growth and reducing the US trade deficit.

Question 8

What is international economic policy coordination?

Accepted Answer

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Question 9

Fiscal and monetary policies are generally used to combat domestic recession and inflation and have secondary effects on the balance of payments.

Accepted Answer

Fiscal and monetary policies can impact the domestic economy, which can in turn affect a country's balance of payments through changes in trade flows and currency valuation. However, they are not directly aimed at influencing the balance of payments.

Question 10

The Group of five (G-5) nations include Japan,Germany,China,and Australia.

Accepted Answer

The Group of Five (G-5) nations actually include France, Germany, Japan, the United Kingdom, and the United States. China and Australia are not part of this group.

Question 11

The Bonn Summit of 1978 and Plaza Accord of 1985 are examples of international policy coordination.

Accepted Answer

Both the Bonn Summit of 1978 and Plaza Accord of 1985 involved coordination between multiple countries to address economic issues, the former focusing on inflation and the latter on exchange rates.

Question 12

What policy instrument should be used when demand-pull inflation exists?

Accepted Answer

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Quiz 16: Macroeconomic Policy in an Open-economy