ecChapter 12 - Chapter 12 Name: _ Date: _ 1. Compared to a...

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Chapter 12 Name: __________________________ Date: _____________ 1. Compared to a closed economy, an open economy is one that: A) allows the exchange rate to float. B) fixes the exchange rate. C) trades with other countries. D) does not trade with other countries. 2. The Mundell-Fleming model assumes that: A) prices are flexible, whereas the IS–LM model assumes that prices are fixed. B) prices are fixed, whereas the IS–LM model assumes that prices are flexible. C) as in the IS–LM model, prices are fixed. D) as in the IS–LM model, prices are flexible. 3. In the Mundell-Fleming model, the domestic interest rate is determined by the: A) intersection of the LM and IS curves. B) domestic rate of inflation. C) world rate of inflation. D) world interest rate. 4. In a small open economy with perfect capital mobility, if the domestic interest rate were to rise above the world interest rate, then ______ would drive the domestic interest rate back to the level of the world interest rate. A) capital inflow B) capital outflow C) the central bank D) a decline in domestic saving 5. In the Mundell-Fleming model on a Y e graph, the curves labeled IS * and LM * are labeled that way as a reminder that: A) the price level is held constant at the world price level p *. B) the interest rate is held constant at the world interest rate r *. C) the exchange rate is held constant at the world exchange rate e *. D) output is held constant at the full employment level. 6. Under a floating system, the exchange rate: A) fluctuates in response to changing economic conditions. B) is maintained at a predetermined level by the central bank. C) is changed at regular intervals by the central bank. D) fluctuates in response to changes in the price of gold. Page 1 7. In a small open economy with a floating exchange rate, an effective policy to decrease equilibrium output is to: A) decrease government spending. B) decrease taxes. C) increase the money supply. D) decrease the money supply. 8. In a small open economy with a floating exchange rate, the exchange rate will depreciate if: A) the money supply is decreased. B) import quotas are imposed. C) government spending is increased. D) taxes are decreased.
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9. In a small open economy with a floating exchange rate, the supply of real money balances is fixed and a rise in government spending: A) raises the interest rate, so that income must rise to maintain equilibrium in the money market. B) raises the interest rate so that net exports must fall to maintain equilibrium in the
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This note was uploaded on 11/28/2010 for the course ECO 2023 taught by Professor Foran during the Fall '08 term at Miami Dade College, Miami.

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ecChapter 12 - Chapter 12 Name: _ Date: _ 1. Compared to a...

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