Exercise 09

Exercise Nine -- Exchange Rate Regime & International Macroeconomic Policies Coordination
1. When country of ABC adopts a combination of easy fiscal and tight monetary policy, and exchange
rates are flexible, is a foreign country suffering from unemployment likely to be pleased with the consequences? A foreign country suffering from inflation? A foreign country with a large external debt denominated in the currency of ABC?
2. An area is more likely to be an optimum currency area if
(a) labor can move freely throughout the entire area.
(b) outputs in various parts of the region are negatively correlated so that negative shocks cancel
each other out.
(c) currency transaction costs are small so that trade occurs easily across the areas.
(d) the area is too small to have its own currency.
(e) (a)–(c).
3. The US trades with Canada and Japan in a world with capital flows and flexible exchange rates. If the US has a trade deficit, then
(a) Canada must have a trade surplus.
(b) Japan cannot have a trade deficit.
(c) Canada cannot have a capital inflow.
(d) Japan must have a trade surplus.
(e) none of the above.
4. All of the following are examples of intermediate exchange rate regimes except
(a) band
(b) crawling peg
(c) adjustable peg
(d) basket peg
(e) currency board
5. Those who support a firm-fix for exchange rates suggest all of the following except
(a) currency union
(b) dollarization
(c) currency board
(d) band
(e) all of the above have been suggested
6. The US trades with Japan in a world with capital flows and flexible exchange rates. If the US reduces government spending, then
(a) the yen will appreciate against the dollar.
(b) the Japanese trade balance improves.
(c) both the US and Japanese interest rates may rise.
(d) income in Japan will rise.
(e) none of the above.
7. International policy coordination is most likely to be unsuccessful if
(a) coordination raises inflation.
(b) monitoring of the foreign country is easy.
(c) policy targets are clear.
(d) there are few countries in the agreement.
(e) full employment is a higher priority than low inflation.
8. A fiscal expansion by the United States results is likely to results in
(a) Europe’s IS curve shifting to the right.
(b) Europe’s IS curve shifting to the left.
(c) Europe’s LM curve shifting to the right.
(d) Europe’s LM curve shifting to the left.
(e) no effect on the European economy.
9. If the Japanese government cuts government spending in order to reduce its budget deficit, the US economy may contract as a result of
(a) an appreciation of the dollar.
(b) a depreciation of the dollar.
(c) appreciation of the yen.
(d) capital outflows.
(e) none of the above.
10. When the US Federal Reserve increases the money supply, the expansionary effect will be greater if
(a) there’s capital inflows.
(b) there’s capital outflows.
(c) capital flows are not affected.
(d) the US was a closed economy.
(e) none of the above.
11. Relative to a small open economy, a monetary expansion by a large open economy results in
(a) larger depreciation.
(b) smaller depreciation.
(c) larger appreciation.
(d) smaller appreciation.
(e) the same impact.
12. A reduction in the money supply by the European Central Bank is likely to result in
(a) an increase in the US money supply.
(b) an increase in US money demand.
(c) a decrease in the US money supply.
(d) a decrease in US money demand.
(e) no effect on US money markets.
13. All of the following are obstacles to successful international policy coordination except
(a) policymakers being aware of their precise economic objectives.
(b) policy makers being aware of where their economies are relative to their optimal levels.
(c) the effect of specific changes in policy have on the respective economies.
(d) since nations are competitors, they wouldn’t want to help improve the economies of other nations
(e) all of the above are obstacles to international coordination。