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WorksheetsChapter 8
Total questions: 10
Worksheet time: 4mins
Within a fixed exchange rate system, the effect of an expansionary fiscal policy action on the balance of payments will be to
worsen the balance on the capital account but improve the trade balance.
worsen the trade balance but improve the balance on the capital account.
worsen both the trade balance and the balance on the capital account
improve both the trade balance and the balance on the capital account.
In the Mundell-Fleming model with perfect capital mobility, the domestic interest rates are determined by
monetary policy
the IS and LM curves
budget deficits
none of the above
On the graph, the general equilibrium point is the intersection of the IS and LM curves, knowing that investment is completely inelastic to interest rates, fiscal policy will:
More impact if applied separately
Not affected
More impact if it is combined with monetary expansion
None of the statements are correct
Which of the following statements is (are) correct? The Mundell-Fleming model is
a. a new closed-economy model
b. implicitly assumes a fixed domestic price level
c. an open-economy version of the IS-LM model
both b and c
In the Mundell-Fleming model, all of the following are true EXCEPT:
the intersection of the IS and LM curves determine the equilibrium exchange rate
the BP curves position is determined by the exchange rate
the policy choice between fixed and floating exchange rates shifts the BP curve
the extent of capital mobility determines the slope of the BP curve
Which principle should developing countries make fiscal policy less cyclical?
Budget balance
Golden rule
Stabilization funds and the 1% principle of Chile
All are correct
In small open economy, monetary policy affects output by affecting the components of aggregate demand. If M increases, what will happen?
Y increases
Y decreases
NX decreases
No change
The increases in domestic income and employment are at the expense of losses abroad
True
False
According to the Mundell-Fleming Model for a small open economy with frexible exchange rate, if the Federal Reserve cannot alter domestic interest rates, changes in the money supply could still aggregate income through changes in the
exchange rate
price level
level of government
tax rates
If the nominal exchange rate between UK pound and US dollar is 0.5 pounds per dollar, how many dollars can you get for a pound?
$1.5
$0.5
$1
None of these answers
