7) Which of the following would not qualify as a logical sequence of changes in
ID: 1195673 • Letter: 7
Question
7)Which of the following would not qualify as a logical sequence of changes in fiscal or monetary policy?
A)M i R
B)M i R
C)G Y i R
D)T Y i R
E)G Y i R
8)Expenditure switching refers to
A)a switching back and forth between domestic and foreign goods in response to changes in the exchange rate. B)a switching back and forth between domestic and foreign goods in response to changes in the interest rate.
C)a switching of back and forth in the current account from a deficit to a surplus and vice versa.
D)a switching back and forth between investment and consumption expenditures.
E)All of the above.
9)In most cases, expenditure-switching policies must be accompanied by expenditure-reducing policies because
A)expenditure-switching policies are completely ineffective without expenditure-reducing policies.
B)the depreciation in the exchange rate may decrease the domestic price of foreign goods, causing an increase in the current account deficit.
C)inflation abroad may increase the demand for domestic goods, causing inflation to rise.
D)inflation ensues as home country domestic expenditures switch away from foreign goods to domestic goods unless overall expenditures are reduced.
E)None of the above.
10)Suppose the Asian financial crisis decreased U.S. exports. In the aggregate demand/aggregate supply model, this would be represented as
A)a shift to the right of aggregate demand, leading to more spending and production in the U.S. economy.
B)a shift to the left of aggregate supply, which would result in less production for the U.S. economy.
C)a shift to the right of aggregate supply, which would result in more production for the U.S. economy.
D)a shift to the left of aggregate demand, leading to less spending and production in the U.S. economy.
11)One possible meaning of the term financial crisis includes
A)insolvency of a banking system.
B)an inflow of short-term capital to a country.
C)the potential problems ahead in using the U.S. dollar as the main international currency.
D)the potential moral hazard problem created by international institutions such as the IMF.
E)None of the above.
13)A fixed exchange rate system crisis may be accompanied or followed by
A)revaluation of a currency.
B)deflationary pressures within the country.
C)gains in comparative advantage.
D)unexpected gains of international reserves.
E)devaluation of a currency.
15)All of the following involve a moral hazard problem except
A)membership in FDIC (Federal Deposit Insurance Corporation) by your local bank.
B)an individual driving carelessly after buying a comprehensive insurance policy for a Ford Pinto.
C)making regular visits to your doctor because you know that you have full healthcare coverage.
D)the IMF bailing Mexico out of a financial crisis, with promises to do the same for other nations that might face financial problems.
E)the requirement of banking institutions that owners invest a substantial portion of their own capital in their bank.
16)The main policy advice given by the IMF to East Asian countries facing the financial crises of 1997/1998 was
A)use capital controls.
B)raising their domestic interest rates to stabilize the collapsing currencies.
C)adopting a flexible exchange rate system.
D)adopting a fixed exchange rate system.
E)using their monetary and fiscal policies alone.
Explanation / Answer
7) B
8) A switching back & forth between domeatic & foreigm goods on response to changes in tje exchange rate.
9) D
10) a shift to the left of AD leading to less spending & production in the US economy
11) insolvency of a banking system
13) devaluation of a currency
15) the requirent of banking institutions that owners invest a substantial portion of their own capital in their bank.
16) using their monetary and fiscal policies alone.
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