Question Details

Expansionary monetary policy under fixed exchange rates in the short run tends to 



1. A country that is buying its own currency to maintain a given exchange rate 
a) has a flexible exchange rate b) has an undervalued currency 
c) has a balance of payments surplus d) is automatically decreasing its money supply 
2. Expansionary monetary policy under fixed exchange rates in the short run tends to 
a) reduce an inflationary gap and reduce a trade surplus 
b) lower the domestic rate of interest and increase a trade surplus 
d) decrease a trade surplus and increase short-term capital inflows 119 
d) reduce a recessionary gap and increase short-term capital outflows 
3. The central bank, which handles the foreign exchange reserve fund for the government, sells reserves and buys dollars when it wants to 
a) lower the interest rate b) stimulate economic activity 
c) stimulate demand for exports d) prevent the exchange rate from falling 
4. Under a fixed exchange rate the influence of international forces causes a stimulating dose of fiscal policy 
a) to appreciate the value of the dollar b) to have a smaller impact on GDP 
c) to create a balance of payments deficit d) to increase our foreign exchange reserves 
5. If the Fed is buying $US in the foreign exchange market to maintain the value of the $US, then 
a) the U.S. dollar is undervalued b) the U.S. money supply is shrinking 
c) the US has a balance of payments surplus d) U.S. foreign exchange reserves are rising



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