21. Under a floating exchange rate regime with a high degree of capital mobility, international crowding out of expansionary fiscal policy occurs because:
a. The foreign money supply decreases.
b. Foreign interest rates increase.
c. The countrys currency appreciates.
d. Domestic interest rates increase.
22. Under a floating exchange rate regime with a high degree of capital mobility, expansionary fiscal policy will lead to:
a. Pressure on domestic currency to appreciate.
b. Pressure on domestic currency to depreciate.
c. Pressure on domestic currency to revalue.
d. Pressure on domestic currency to devalue.
23. Under a floating exchange rate regime with a high degree of capital mobility, the change in the value of domestic currency following expansionary fiscal policy will tend to:
a. Cause the current account to improve.
b. Cause a surplus in the trade balance.
c. Strengthen the effect of the expansionary fiscal policy.
d. Weaken the effect of the expansionary fiscal policy.
Figure 24.1: IS-LM-FE Model with Floating Exchange Rates
IS1
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24. Referring to Figure 24.1, the move from point A to point B was caused by:
a. Expansionary monetary policy.
b. Expansionary fiscal policy.
c. Contractionary monetary policy.
d. Contractionary fiscal policy.
25. Referring to Figure 24.1, at point B there is pressure for the domestic currency to:
a. Appreciate.
b. Depreciate.
c. Devalue.
d. Revalue.
26. Referring to Figure 24.1, the shift of the FE curve from FE0to FE1was caused by:
a. Contractionary monetary policy.
b. Official intervention in the foreign exchange market.
c. An improvement in international competitiveness.
d. A worsening of international competitiveness.
27. Referring to Figure 24.1, the shift of the IS curve from IS1to IS2was caused by:
a. Contractionary monetary policy.
b. Official intervention in the foreign exchange market.
c. An improvement in international competitiveness.
d. A worsening of international competitiveness.
28. Which of the following statements is accurate?
I. Monetary policy is powerful for a country with floating exchange rates.
II. Fiscal policy for a country with floating exchange rates is more powerful with a high degree of capital mobility than with a low degree of capital mobility.
III. Under floating exchange rates, external capital-flow shocks can have effects on internal balance by altering the exchange rate and the country’s international competitiveness.
a. I and II
b. I and III
c. II and III
d. I, II and III
29. The effect of domestic spending shocks on a country with a floating exchange rate differs depending on:
a. Whether sterilized intervention is used or not.
b. Whether there is a high degree of capital mobility or a low degree of capital mobility.
c. Whether the country initially is running a deficit or a surplus in its official settlements balance.
d. Whether the intervention causes the money supply to rise or to fall.
30. If there is a shift of international trade away from a country’s products, we can expect that the FE and IS curves will shift to the __________, the overall payments balance will move toward __________, and the currency will __________.
a. right; surplus; appreciate
b. right; deficit; appreciate
c. left; surplus; depreciate
d. left; deficit; depreciate