Exercises
1.True/False questions
(1)Under a managed float exchange rate system, the Fed may attempt to stimulate the US economy by weakening the dollar.Such an adjustment in the dollar’s value should decrease the US demand for products produced by major foreign countries.
(2)The EB schedule represents combinations of the real exchange rate and domestic absorption for which the economy is in internal balance; that is, full employment with stable prices.
(3)The effects of a fiscal expansion on the exchange rate under floating rates depend crucially upon the slope of the BP schedule relative to the LM schedule.
(4)Monetary policy is very effective at influencing output under fixed exchange rates.
(5)The relative effectiveness of fiscal and monetary policy is very much dependent upon the choice of exchange-rate regime.
(6)Fiscal policy is ineffective at influencing output floating exchange rates.
(7)Mundell suggested that what he called the principle of effective market classification should be used by economic policy-makers in conjunction with Tinbergen’s instruments- targets rule.
(8)Monetary policy is very effective under floating exchange rates with perfect capital mobility.
(9)In reality there is always a conflict between domestic and external equilibrium.
2.Essay questions
(1)What are the main reasons for the BOP imbalance?
(2)What are the objectives and instruments for economic policies?
(3)What is Tinbergen rule?
(4)What is the main conclusion of IS-LM-BP framework?
(5)What is sterilized intervention?
(6)What is direct control policy?
(7)What is the limitation of the Mundell-Fleming model?