1. Monetary policy is impacted by the foreign sector through A. The additional i
ID: 1130406 • Letter: 1
Question
1. Monetary policy is impacted by the foreign sector through
A. The additional investment choice of foreign assets
B. The ability to move and hold wealth internationally
C. Interest rates potentially attracting foreign capital
D. All the above
2. If we expect our exchange rate to depreciate against another currency then which of the following is also true?
A. We should invest in local assets demoniated in out currency
B. We should invest in foreign assets denominated in the other currency
C. We should hold cash (domestic)
D. None of the aboice
3. which of the following could not reasonably be considered an advantage of a flexible exchange rate?
A. stability in that nations international good market
B. low cost to implement
C. control over domestic interest rated
D. non of the above
4. Using a basic Keynesian Cross model if we can safely say Y=c0+c1(Y)+I+G+EX-im0-im1(Y) and the propensity to consume is 80% and the propensity to import is 30% then the associated fishcal policy multiplier is going to be about
A. 5
B. 3
C. 2
D. None of the aboce
5. In the above model taxes impact
A. Comsumption
B. Business investment
C. Government spending
D. None of the above
6. If we were to expand this model and say that a) Business Investment is negatively correlated with the rate of interest and b) every 2% increase in incomes results in a .5% increase in interest rate the impact on incomes (multiplier) from a given fiscal action would be:
A. larger
B. smaller
C. no charge
D. not enough information to say
7. Which nation is NOT a major trading partner with US
A. Mexico
B. Canada
C. China
D. None of the above
8. IS-LM models like the one we developed in class do not consider
A. Supply-Side impacts
B. changes to costs of production associated with changed in output
C. prices expections
D. All of the above
Explanation / Answer
1.
Answer: D
Monetary policy: This is the policy of government regarding the money supply in the market. Objective of this policy is to regulate the supply of money in the market by controlling interest rates, purchasing or selling bonds, etc. Suppose the increasing interest rate decreases the money supply in the economy, or vice versa.
A. Once the foreign asset is invested in domestic market, money flows from domestic market to foreign market.
B. If people in domestic market are having enough money in their hands, they influence in money supply by investing in foreign market.
C. If the interest rate is high in the domestic market, foreign investment will be attracted.
Since all are relevant, the answer would be “D”.
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