Question

In the Mundell prescription for monetary and fiscal policy under fixed exchange rates, expansionary fiscal policy and contractionary monetary policy would be recommended if a country were faced with

Select one:

a. unemployment and a balance-of-payments deficit.

b. unemployment and a balance-of-payments surplus.

c. inflation and a balance-of-payments deficit.

d. inflation and a balance-of-payments surplus.

Answer #1

Option A.

- In the Mundell prescription for monetary and fiscal policy under fixed exchange rates, both fiscal and monetary policies can be used simultaneously at the same time.
- According to the mundell model, when exapansionary fiscal policy of increasing spending and decreasing tax rates is combined with a contractionary monetary policy of decreasing money supply, then a country can eliminate unemployment and balance of payment deficit together.
- Higher interest rates and higher spending with lower taxes will balance out the aggregate demand within the economy.
- This will eliminate the problem of deficits that arise when exchange rates are fixed.

According to the Mundell-Fleming model, under fixed exchange
rates expansionary fiscal policy causes income to _________, and
under flexible exchange rates expansionary fiscal policy causes
income to __________.
increase; increase
increase; remain unchanged
remain unchanged; remain unchanged
remain unchanged; increase
none of the above

Under a system of floating exchange rates and high capital
mobility, is monetary policy or fiscal policy better suited for
promoting internal balance? Why?

If most major economies are operating under a regime of fixed
exchange rates, then a ________ in a country's balance of payments
suggests that the country should ________ its currency.
surplus; revalue
surplus; devalue
deficit; revalue
All of these

In a Mundell-Fleming model with floating exchange rates and
perfect capital mobility, discuss effectiveness of monetary and
fiscal policy.

In a Mundell-Fleming model with floating exchange rates and
perfect capital mobility, discuss effectiveness of monetary and
fiscal policy.

Explain whether expansionary fiscal policy and whether
expansionary monetary policy will crowd out net exports in a
flexible exchange rate regime. Assume that the country in question
is a small country ( there is perfect capital mobility).

Under the fixed exchange regime, if the country begin with a
deficit in its overall balance of payments, to
maintain the fixed exchange rate, explain the following
How does the central bank intervene through monetary policy to
affect the balance of payment?
How does the central bank intervene through fiscal policy to
affect the balance of payment?

Under the fixed exchange regime, if the country begins with a
deficit in its overall balance of payments, to maintain the fixed
exchange rate, explain the following
a) How does the central bank intervene through
monetary policy to affect the balance of payment?
b) How does the central bank intervene through fiscal
policy to affect the balance of payment?

40. Under perfect capital mobility and fixed exchange rates,
expansionary _____ is a futile attempt because the _____.
a. fiscal policy; LM curve effectively is vertical.
b. monetary policy; LM curve effectively is the same as the FE
curve.
c. fiscal policy; interest rate does not change.
d. monetary policy; IS curve will shift to the left.
41. The J curve shows that:
a. devaluation is more likely to improve the trade balance in
the short-run than in the long-run....

Suppose that in a closed economy the fiscal policy is
contractionary and monetary policy is expansionary, and the central
bank is setting the interest rates (LM is horizontal). Graphically
analyze this policy mix by using IS-LM diagram. What will be the
impact on real income and on interest rate in the short run? What
will be the impact of this policy mix on the economy in the medium
run? Show by using an AD-AS-LRAS diagram.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 13 minutes ago

asked 36 minutes ago

asked 44 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago