Economic Stabilization in Open Economy: Q&A Week 18
18 Questions
1 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

In a fixed exchange rate regime, how does an expansionary monetary policy affect the money supply?

  • The central bank does not intervene, and the money supply remains unchanged.
  • The central bank increases the money supply, which leads to a depreciation of the domestic currency.
  • The central bank increases the money supply to avoid a depreciation of the domestic currency.
  • The central bank decreases the money supply to avoid a depreciation of the domestic currency. (correct)

    • According to the Mundell-Fleming model, what is the effect of an increase in exogenous aggregate demand (Ā) on output (Y) in a fixed exchange rate regime?

  • Y decreases because the central bank raises interest rates to defend the fixed exchange rate.
  • Y increases due to the rise in Ā and C, and the increase is amplified by an increase in net exports (NX).
  • Y increases due to the rise in Ā and C, but the increase is mitigated by a decline in net exports (NX). (correct)
  • Y remains unchanged because the central bank offsets the increase in Ā through contractionary monetary policy.

    • How does an expansionary monetary policy affect the exchange rate in a floating exchange rate regime according to the Mundell-Fleming model?

  • The exchange rate appreciates, which shifts the IS curve to the left.
  • The exchange rate remains unchanged because the central bank intervenes to stabilize it.
  • The exchange rate depreciates, which shifts the IS curve to the right. (correct)
  • The exchange rate depreciates, which shifts the LM curve to the right.

    • What is the effect of an increase in the exogenous component of aggregate demand (Ā) on the money market equilibrium in the Mundell-Fleming model?

    <p>The LM curve shifts to the right, increasing the equilibrium level of output (Y).</p> Signup and view all the answers

    How does an increase in the money supply affect the interest rate in the IS-LM model?

    <p>The interest rate decreases, shifting the LM curve to the right.</p> Signup and view all the answers

    In the Mundell-Fleming model, how does an expansionary monetary policy affect net exports (NX) in a fixed exchange rate regime?

    <p>NX decreases, as the central bank sells foreign currency to maintain the fixed exchange rate.</p> Signup and view all the answers

    What is the Mundell-Fleming model an extension of?

    <p>IS-LM model</p> Signup and view all the answers

    In the context of the text, what happens to net exports when the pound sterling depreciates?

    <p>Net exports increase</p> Signup and view all the answers

    How does a rise in the pound sterling affect domestic goods and foreign goods?

    <p>Domestic goods become more expensive, foreign goods become cheaper</p> Signup and view all the answers

    What is the condition under which a depreciation in the pound sterling increases net exports?

    <p>β + α &gt; 1</p> Signup and view all the answers

    What is included in the Balance of Payments (BoP) according to the text?

    <p>Sum of net exports and capital inflows</p> Signup and view all the answers

    What role does the Marshall-Lerner condition play in a floating exchange rate regime?

    <p>Keeping the BoP in equilibrium through changes in the exchange rate (e)</p> Signup and view all the answers

    In a fixed exchange rate regime, which of the following is considered an exogenous variable?

    <p>Money supply (M)</p> Signup and view all the answers

    According to the Mundell-Fleming model, an increase in government spending (d > 0) in a fixed exchange rate regime will lead to:

    <p>An increase in domestic output (dY &gt; 0)</p> Signup and view all the answers

    What is the impact of an increase in the money supply (dM > 0) on the domestic interest rate (r) in a fixed exchange rate regime?

    <p>The interest rate will remain unchanged (dr = 0)</p> Signup and view all the answers

    In the Mundell-Fleming model, which of the following statements about the aggregate demand (AD) curve is correct?

    <p>The AD curve is perfectly elastic to the interest rate</p> Signup and view all the answers

    What is the relationship between the money market equilibrium (MME) and the goods market equilibrium (GME) in a fixed exchange rate regime?

    <p>The MME and GME are simultaneously determined</p> Signup and view all the answers

    What is the impact of an increase in government spending (d > 0) on the money supply (M) in a fixed exchange rate regime?

    <p>The money supply remains unchanged (dM = 0)</p> Signup and view all the answers

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser