Chap025

Chap025 - Chapter 25 - Economic Policy in the Open Economy...

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Chapter 25 - Economic Policy in the Open Economy Under Chapter 25 Economic Policy in the Open Economy Under Multiple Choice Questions 1. In the ordinary analysis of IS and LM curves (ignoring the BP curve), A . Expansionary fiscal policy shifts the IS curve to the left b. Expansionary monetary policy shifts the LM curve to the left c. Expansionary fiscal and expansionary monetary policy undertaken at the same time will lead to an increase in the level of equilibrium income d. Expansionary fiscal policy and contractionary monetary policy acting together will lead to a decline in the equilibrium interest rate. 2. In the graph below, if point W represents the income and interest rate targets under a country's fixed exchange rate system, then the policy combination needed to reach point W consists of A . Expansionary monetary policy and expansionary fiscal policy b. Expansionary monetary policy and contractionary fiscal policy c. Contractionary monetary policy and contractionary fiscal policy d. Contractionary monetary policy and expansionary fiscal policy 25-1
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3. In the following diagram, with fixed exchange rates, the economy is in domestic equilibrium at income level __________ and there is __________. a. Y1; a balance-of-payments surplus b. Y2; a balance-of-payments deficit C . Y2; a balance-of-payments surplus d. Y3; equilibrium in the balance of payments 4. In the Mundell prescription for monetary and fiscal policy under fixed exchange rates, expansionary fiscal policy and contractionary monetary policy would be recommended if a country were faced with A . Unemployment and a balance-of-payments deficit b. Unemployment and a balance-of-payments surplus c. Inflation and a balance-of-payments deficit d. Inflation and a balance-of-payments surplus 5. In a closed economy, an increase in the demand for money shifts the LM curve to the __________; other things equal, this will lead to __________ in the level of national income. a. Right; an increase
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Chap025 - Chapter 25 - Economic Policy in the Open Economy...

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