PS4sp08

PS4sp08 - Problem Set 4 Due date: April 18, 2008 at the...

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1 Problem Set 4 Econ 320 – 001, Spring 2008 Due date: April 18, 2008 at the beginning of class There are 30 questions (25 multiple choice and 5 short answer) in this problem set. Submit your answers by the beginning of the class on Friday April 18, 2008. For the Multiple Choice section: mark your answers (and submit) on an official UNC scantron sheet. Make sure to fill in your name and your student ID number. You can pick up a scantron sheet at the checkout counters of the Student Stores and campus snackbars. For the Short Answer section: please write out and submit on your own paper the answers to these questions. You must show your work (calculations, derivations, reasoning) in order to receive full credit. Make sure to print your name on the paper and sign the honor Pledge affirming that you have neither given nor received unauthorized aid on this assignment and have complied with all of the rules of this assignment. I. Multiple Choice 1. (5 pts) 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. 2. (5 pts) In a small open economy with a floating exchange rate, an effective policy to increase equilibrium output is to: A) increase government spending. B) increase taxes. C) increase the money supply. D) decrease the money supply. 3. (5 pts) In a small open economy with a floating exchange rate, if the government decreases the money supply, then in the new short-run equilibrium: A) income falls and the exchange rate rises. B) the exchange rate falls and income rises. C) income remains unchanged but the exchange rate rises. D) the exchange rate remains unchanged but income falls. 4. (5 pts) In a small open economy with a fixed exchange rate, if the government increases government purchases, then in the process of adjusting to the new short-run equilibrium the money supply: A) increases to keep the exchange rate unchanged, thus augmenting the effect of government spending on income. B) decreases to keep the exchange rate unchanged, thus offsetting the effect of government spending on income. C) remains unchanged, and there is no effect of government spending on income. D) remains unchanged to keep the interest rate at the world interest, so that government spending reduces income.
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2 5. (5 pts) According to the Mundell-Fleming model, import restrictions in an economy with flexible exchange rates cause net exports to ______ and in an economy with fixed exchange rates import restrictions cause net exports to ______. A) increase; increase
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PS4sp08 - Problem Set 4 Due date: April 18, 2008 at the...

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