Assig
me
t3
CHAPTER7ECONOMICPOLICYINTHEOPENECONOMYUNDERFIXEDEXCHANGERATES
Part1MultipleChoiceQuestio
so
lyo
ea
swerisright
1I
theordi
arya
alysisofISa
dLMcurvesig
ori
gtheBPcurveaexpa
sio
aryfiscalpolicyshiftstheIScurvetotheleftbexpa
sio
arymo
etarypolicyshiftstheLMcurvetotheleftcexpa
sio
aryfiscala
dexpa
sio
arymo
etarypolicyu
dertake
atthe
sametimewillleadtoa
i
creasei
thelevelofequilibriumi
comedexpa
sio
aryfiscalpolicya
dco
tractio
arymo
etarypolicyacti
g
togetherwillleadtoadecli
ei
theequilibriumi
terestrate
2I
thegraphbelowifpoi
tWreprese
tsthei
comea
di
terestratetargetsu
deracou
try’sfixedexcha
geratesystemthe
thepolicycombi
atio
eededtoreachpoi
tWco
sistsof
aexpa
sio
arymo
etarypolicya
dexpa
sio
aryfiscalpolicybexpa
sio
arymo
etarypolicya
dco
tractio
aryfiscalpolicycco
tractio
arymo
etarypolicya
dco
tractio
aryfiscalpolicydco
tractio
arymo
etarypolicya
dexpa
sio
aryfiscalpolicy3I
theMu
dellprescriptio
formo
etarya
dfiscalpolicyu
derfixedexcha
geratesexpa
sio
aryfiscalpolicya
dco
tractio
arymo
etarypolicywouldberecomme
dedifacou
trywerefacedwith
1
fau
employme
ta
dabala
ceofpayme
tsdeficitbu
employme
ta
dabala
ceofpayme
tssurplusci
flatio
a
dabala
ceofpayme
tsdeficitdi
flatio
a
dabala
ceofpayme
tssurplus
4
I
aclosedeco
omya
i
creasei
thedema
dformo
eyshiftstheLM
curvetothe__________otherthi
gsequalthiswillleadto__________i
thelevel
of
atio
ali
come
arighta
i
creasebrightadecreaseclefta
i
creasedleftadecrease
5I
thea
alysisoftheuseofexpa
sio
aryor“easy”fiscalpolicyu
dertake
byacou
try’sgover
me
ti
asituatio
offixedexcha
geratesthepolicyleadsto__________ofthecou
try’scurre
taccou
tbala
ceortradebala
cea
difshorttermcapitalishighlymobilebetwee
cou
triesthepolicy__________ofthecou
try’scapitalfi
a
cialaccou
tbala
ce
aa
improveme
talsoleadstoa
improveme
tba
improveme
tleadstoadeterioratio
orworse
i
gcadeterioratio
orworse
i
gleadstoa
improveme
tdadeterioratio
orworse
i
galsoleadstoadeterioratio
orworse
i
g
6U
derfixedexcha
geratesa
daco
sta
tpriceleveltheautomaticadjustme
tprocessproducesbala
ceofpayme
tsequilibriumas
atheLMcurveshiftsalo
gthefixedISa
dBPcurvesbtheIScurveshiftsalo
gthefixedLMa
dBPcurvesctheISLMa
dBPcurvesallshiftdtheBPcurveshiftstothepoi
twheretheISa
dLMcurvesi
tersect
7I
thefollowi
gdiagramwithfixedexcha
gerates
2
ftheeco
omyisi
domesticequilibriumati
comelevel__________a
dthereis__________
aY1abala
ceofpayme
tssurplusbY2abala
ceofpayme
tsdeficitcY2abar