Chap020 - Chapter 20 - International Adjustment and...

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Chapter 20 - International Adjustment and Interdependence Chapter 20 International Adjustment and Interdependence Multiple Choice Questions 1. The real exchange rate is defined as a. The nominal exchange rate divided by the domestic price level b. The nominal exchange rate divided by the foreign price level c. The nominal exchange rate divided by the ratio of the foreign price level to the domestic price level D . The nominal exchange rate multiplied by the ratio of the foreign price level to the domestic price level e. The nominal exchange rate multiplied by the domestic price level Difficulty: Easy 2. Assume a country lacks technical innovation in its domestic industries and, as a result, experiences a severe decline in exports. What kind of policy should this country employ to get back to a situation of internal and external balance? a. An increase in government spending b. An increase in tariffs on import goods c. Restrictive monetary policy in combination with expansionary fiscal policy d. Expansionary monetary policy in combination with restrictive fiscal policy E . Expansionary fiscal policy in combination with the levying of tariffs on imports Difficulty: Medium 3. When a country runs a balance of payments deficit under a system of fixed exchange rates, which of the following is NOT part of the automatic adjustment process? a. A decrease in money supply leads to a lower level of spending b. A decrease in aggregate demand lowers domestic prices c. A decrease in domestic prices relative to foreign prices reduces the level of imports D . An increase in tariffs reduces the level of imports e. An increase in unemployment leads to lower wages Difficulty: Easy 20-1
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Chapter 20 - International Adjustment and Interdependence 4. A country's trade imbalance can improve if there is a a. Change in domestic money supply and therefore prices b. Change in employment, wages, and therefore competitiveness c. Change in fiscal policy d. Change in the exchange rate E . All of the above Difficulty: Easy 5. Which of the following policy measures CANNOT be used to reduce a current account deficit? a. A tariff on imported goods b. A devaluation of the currency c. Restrictive monetary policy D . Expansionary fiscal policy e. A combination of A. and C Difficulty: Medium 6. The monetary approach to balance of payments problems, often used by the IMF, relies on a. Restricting monetary policy b. Imposing domestic credit controls c. Creating a recession d. Letting interest rates increase E . All of the above Difficulty: Easy 20-2
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Chapter 20 - International Adjustment and Interdependence 7. Which of the following is NOT a combination of an expenditure-switching and an expenditure-reducing policy? a. An increase in tariffs combined with restrictive monetary policy
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Chap020 - Chapter 20 - International Adjustment and...

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