Chap026

Chap026 - Chapter 26 - Economic Policy in the Open Economy...

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Chapter 26 - Economic Policy in the Open Economy Under Flexible Chapter 26 Economic Policy in the Open Economy Under Flexible Multiple Choice Questions 1. In the IS/LM/BP analysis, as a country's currency depreciates (and assuming that the Marshall-Lerner conditions holds), the country's a. LM curve shifts to the right B . BP curve shifts to the right c. IS curve shifts to the left d. LM curve shifts to the left 2. In a situation of flexible exchange rates and where the BP curve is steeper than the LM curve, a. Monetary policy is less effective in raising national income than would be the case under fixed exchange rates B . Expansionary fiscal policy will be more effective in raising the level of national income than would be the case under fixed exchange rates c. Expansionary fiscal policy will lead to an appreciation of the country's currency d. The BP curve stays fixed in the same position irrespective of any shifts that occur in the IS and LM curves 3. In a situation of flexible exchange rates, other things equal, a shift of the IS curve to the left will lead to __________ of the country's currency if the BP curve is steeper than the LM curve and __________ of the country's currency if the LM curve is steeper than the BP curve. a. An appreciation; also will lead to an appreciation B . An appreciation; will lead to a depreciation c. A depreciation; will lead to an appreciation d. A depreciation; also will lead to a depreciation 26-1
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Chapter 26 - Economic Policy in the Open Economy Under Flexible 4. Under flexible exchange rates, A . Fiscal policy is most effective in influencing national income when capital is perfectly immobile internationally and least effective when capital is perfectly mobile internationally b. Monetary policy is more effective in influencing national income when capital is perfectly immobile internationally than when capital is perfectly mobile internationally
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Chap026 - Chapter 26 - Economic Policy in the Open Economy...

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