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chapter 16 - problems

chapter 16 - problems - 16 Short-Run Macroeconomic Policy...

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16 Short-Run Macroeconomic Policy under Fixed Exchange Rates QUICK QUIZ 3. Potential benefits from international capital mobility include (a) the ability of capital to flow to its most productive location. (b) the ability of portfolio owners to diversify. (c) the ability of potential capital flight to discipline policy makers. (d) the ability of savers to seek the highest return on their saving. (e) all of the above. (f) (a) and (d). 4. With a fixed exchange rate and perfectly immobile capital, contractionary fiscal policy in the short run leads to (a) a rise in Q and a fall in i. (b) a fall in Q and a rise in i. (c) no change in Q and a fall in i. (d) no change in Q and a rise in i. (e) a rise in Q and no change in i. (f) a fall in Q and no change in i. 5. With a fixed exchange rate and perfectly immobile capital, contractionary monetary policy in the short run leads to (a) a rise in Q and a fall in i. (b) a fall in Q and a rise in i. (c) no change in Q and a fall in i. (d) no change in Q and a rise in i. (e) a rise in Q and no change in i. (f) no change in Q or i. 6. With a fixed exchange rate and perfectly immobile capital, a currency revaluation in the short run leads to (a) a rise in Q and a fall in i. (b) a fall in Q and an uncertain effect on i. (c) no change in Q and a fall in i. (d) no change in Q and a rise in i. (e) a rise in Q and no change in i. (f) no change in Q or i.
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7. With a fixed exchange rate and perfectly mobile capital, contractionary fiscal policy in the short run leads to (a) a rise in Q and a fall in i. (b) a fall in Q and a rise in i. (c) no change in Q and a fall in i. (d) no change in Q and a rise in i. (e) a rise in Q and no change in i. (f) a fall in Q and no change in i. 8. With a fixed exchange rate and perfectly mobile capital, contractionary monetary policy in the short run leads to (a) a rise in Q and a fall in i. (b) a fall in Q and a rise in i. (c) no change in Q and a fall in i. (d) no change in Q or i. (e) a rise in Q and no change in i. (f) a fall in Q and no change in i. 9. With a fixed exchange rate and perfectly mobile capital, a permanent currency revaluation in the short run leads to (a) a rise in Q and a fall in i. (b) a fall in Q and a rise in i. (c) no change in Q and a fall in i. (d) no change in Q or. i. (e) a rise in Q and no change in i. (f) a fall in Q and no change in i. 10. Under a fixed exchange rate and perfectly mobile capital, an expected currency devaluation in the short run leads to (a) a rise in Q and a fall in i. (b) a fall in Q and a rise in i. (c) no change in Q and a fall in i. (d) no change in Q or i. (e) a rise in Q and no change in i. (f) a fall in Q and no change in i. ANSWERS TO QUICK QUIZ 3. e. 4. c. 5. f. 6. b. 7. f. 8. d. 9. f. 10. b.
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PROBLEMS AND QUESTIONS FOR REVIEW 1. What is meant by the goals of internal and external balance? 2. Define targets and instruments. For successful policy making, what relationship must hold between the number of targets and the number of instruments? How can an instrument become a target? Give some examples.
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