protect

Question 1

The economist most
responsible for shifting the emphasis from automatic adjustment mechanisms to adjust
ment policies was ____

Answer 1

James Meade.

Question 2

The most important economic goals or objectives of nations are

Answer 2

(1) internal bal
ance, (2) external balance, (3) a reasonable rate of growth, (4) an equitable distribution of
income, and (5) adequate protection of the environment.

Question 3

refers to full
employment or a rate of unemployment of no more than, say, 4–5 percent per year (the
so- called frictional unemployment arising in the process of changing jobs) and a rate of
inflation of no more than 2 or 3 percent per year.

Answer 3

Internal balance

Question 4

refers to equilibrium
in the balance of payments (or a desired temporary disequilibrium such as a surplus that
a nation may want in order to replenish its depleted international reserves).

Answer 4

External balance

Question 5

To achieve these objectives, nations have the following policy instruments at their disposal:

Answer 5

(1) expenditure-changing, or demand, policies, (2) expenditure-switching policies,
and (3) direct controls.

Question 6

include both fiscal and monetary
policies.

Answer 6

Expenditure-changing policies

Question 7

refers to changes in government expenditures, taxes, or both.

Answer 7

Fiscal policy

Question 8

Fiscal policy is ______ if government expenditures are increased and/or taxes reduced.

Answer 8

expansionary

Question 9

refers to a reduction in government expenditures and/or an increase in
taxes, both of which reduce domestic production and income and induce a fall in imports.

Answer 9

Contractionary fiscal policy

Question 10

involves a change in the nation’s money supply that affects domestic
interest rates

Answer 10

Monetary policy

Question 11

Monetary policy is _____if the money supply is increased and interest rates
fall.

Answer 11

easy

Question 12

refers to a reduction in the nation’s money supply and a rise in the
interest rate.

Answer 12

tight monetary policy

Question 13

This discourages investment, income, and imports, and also leads to a short-
term capital inflow or reduced outflow.

Answer 13

tight monetary policy

Question 14

refer to changes in the exchange rate

Answer 14

Expenditure-switching policies

Question 15

A _______ switches expenditures from foreign to domestic com
modities and can be used to correct a deficit in the nation’s balance of payments.

Answer 15

devaluation

Question 16

A _______switches expenditures from
domestic to foreign products and can be used to correct a surplus in the nation’s balance of
payments.

Answer 16

revaluation

Question 17

But it also
increases domestic production, and this induces a rise in imports, which neutralizes a part
of the original improvement in the trade balance.

Answer 17

a
devaluation

Question 18

This also reduces domestic production and, consequently, induces a decline in
imports, which neutralizes part of the effect of the revaluation.

Answer 18

A revaluation

Question 19

consist of tariffs, quotas, and other restrictions on the flow of inter
national trade and capital.

Answer 19

Direct controls

Question 20

These are also expenditure-switching policies, but they can be
aimed at specific balance-of-payments items (as opposed to a devaluation or revaluation,
which is a general policy and applies to all items at the same time).

Answer 20

Direct controls

Question 21

Direct controls in the
form of _____ controls can also be used to stem domestic inflation when other
policies fail.

Answer 21

price and wage

Question 22

Nobel prize winner in economics in 1969

Answer 22

Tinbergen

Question 23

principle of effective market classification developed by

Answer 23

Mundell

Question 24

Since each policy affects both the internal and external balance of the nation, it is cru
cial that each policy be paired with and used for the objective toward which it is most effective, according to the

Answer 24

principle of effective market classification

Question 25

Swan diagram in honor of ______ the Australian economist who introduced it.

Answer 25

Trevor Swan,

Question 26

the ______show how a nation can use fiscal and monetary policies to achieve both internal and external balance without any change in the exchange rate.

Answer 26

Mundell–Fleming model

Question 27

shows the various combinations of interest rates (i) and national income (Y) that result in equilibrium in the goods market.

Answer 27

IS curve

Question 28

The ______ shows the various combinations of interest rates (i) and national income (Y) at which the demand for money is equal to the given and fixed supply of money, so that the money market is in equilibrium.

Answer 28

LM curve

Question 29

____ is demanded for transactions and speculative purposes.

Answer 29

Money

Question 30

The _______consists of the active working balances held for the purpose of making business payments as they become due.

Answer 30

transaction demand for money

Question 31

The ______arises from the desire to hold money balances instead of interest- bearing securities.

Answer 31

speculative demand for money

Question 32

The _______shows the various combinations of interest rates (i) and national income (Y) at which the nation’s balance of payments is in equilibrium at a given exchange rate.

Answer 32

BP curve

Question 33

______in the form of an increase in government expenditures and/or a reduction in taxes (which increases private consumption) shifts the IS curve to the right so that at each rate of interest, the goods market is in equilibrium at a higher level of national income.

Answer 33

An expansionary fiscal policy

Question 34

_____in the form of an increase in the nation’s money supply shifts the LM curve to the right, indicating that at each rate of interest, the level of national income must be higher to absorb the increase in the money supply.

Answer 34

easy monetary policy

Question 35

Reduces the nation’s money supply and shifts the LM curve to the left.

Answer 35

tight monetary policy r

Question 36

movements along the horizontal axis away from the origin refer to

Answer 36

expansionary fiscal policy

Question 37

movements along the vertical axis away from the origin refer to

Answer 37

tight monetary policy

Question 38

trade-off, between the rate of unemployment and the rate of inflation is summarized by the

Answer 38

Phillips curve.

Question 39

With price increases or inflation occurring even at less than full employment, the nation has at least three objectives:

Answer 39

full employment, price stability, and equilibrium in the balance of payments,

Question 40

Modern nations also have as a fourth objective an ______, which usually requires a low long-term interest rate to achieve.

Answer 40

“adequate” rate of growth

Question 41

Direct controls to affect the nation’s balance of payments can be subdivided into

Answer 41

trade controls financial or exchange controls

Question 42

(such as tariffs, quotas, and other quantitative restrictions on the flow of international trade)

Answer 42

trade controls

Question 43

such as restrictions on international capital flows and multiple exchange rates

Answer 43

financial or exchange controls

Question 44

Direct control can also take the form of ____ and ____in an attempt to restrain domestic inflation when more general policies have failed.

Answer 44

price and wage controls

Question 45

One of the most important trade or commercial controls is the

Answer 45

import tariff.

Question 46

This increases the price of imported goods to domestic consumers and stimulates the domestic production of import substitutes.

Answer 46

import tariff.

Question 47

On the other hand, _____make domestic goods cheaper to foreigners and encourage the nation’s exports

Answer 47

export subsidies

Question 48

In general, an ____ and _____of a given percentage applied across the board on all commodities are equivalent to a devaluation of the nation’s currency by the same percentage.

Answer 48

import tariff and an export subsidy

Question 49

Group of Ten most important industrial nations

Answer 49

United States, the United Kingdom, West Germany, Japan, France, Italy, Canada, the Netherlands, Belgium, and Sweden)

Question 50

agreed to lend up to $30 billion to any member of the group facing large short term capital outflows

Answer 50

Group of Ten most important industrial nations

Question 51

Most developing nations, on the other hand, have some type of exchange controls. The most common is _______ with higher exchange rates on luxury and non essential imports and lower rates on essential imports.

Answer 51

multiple exchange rates,

Question 52

are needed because the automatic adjustment mechanisms discussed in the previous two chapters have unwanted side effects.

Answer 52

Adjustment policies

Question 53

The most important economic goals or objectives of nations are

Answer 53

internal and external balance.

Question 54

refers to full employment with price stability.

Answer 54

Internal balance

Question 55

refers to equilibrium in the balance of payments.

Answer 55

External balance

Question 56

To reach these goals, nations have at their

Answer 56

disposal expenditure-changing policies (i.e., fiscal and monetary policies) and expenditure-switching policies (devaluation or revaluation).

Question 57

disposal expenditure-changing policies

Answer 57

(i.e., fiscal and monetary policies)

Question 58

expenditure-switching policies

Answer 58

(devaluation or revaluation).

Question 59

According to the _______, each policy should be paired or used for the objective toward which it is most effective.

Answer 59

principle of effective market classification

Question 60

In the ______the positively inclined EE curve shows the various combinations of exchange rates and domestic absorption that result in external balance.

Answer 60

Swan diagram,

Question 61

shows the various combinations of exchange rates and domestic absorption that result in external balance

Answer 61

Positively inclined EE curve

Question 62

To the left of EE we have ____, and to the right _____.

Answer 62

external surpluses, external deficits

Question 63

The negatively inclined ______ shows the various combinations of exchange rates and domes tic absorption that result in internal balance.

Answer 63

YY curve

Question 64

To the left of YY there is _____, and to the right _____

Answer 64

unemployment, inflation.

Question 65

T or F The goods market is in equilibrium whenever the quanti ties of goods and services demanded and supplied are equal.

Answer 65

T

Question 66

T or F The money market is in equilibrium whenever the quantity of money demanded for transactions and speculative pur poses is equal to the given demand of money.

Answer 66

F_The money market is in equilibrium whenever the quantity of money demanded for transactions and speculative pur poses is equal to the given supply of money.

Question 67

T or F The money market is in equilibrium whenever the quantity of money demanded for transactions and speculative pur poses is equal to the given supply of money.

Answer 67

T

Question 68

The_____show the various combinations of interest rates and national income at which the goods market, the money market, and the balance of payments, respectively, are in equilibrium.

Answer 68

IS, LM, and BP curves

Question 69

The IS curve is _____, while the LM and BP curves are usually _____.

Answer 69

negatively inclined, positively inclined

Question 70

The more responsive capital flows are to interest rate changes, the____is the BP curve.

Answer 70

flatter

Question 71

shifts the IS curve to the right

Answer 71

Expansionary fiscal policy

Question 72

shifts the LM curve to the left, but they leave the BP curve unchanged as long as the exchange rate is kept fixed.

Answer 72

tight monetary policy

Question 73

With ______, the nation could reach internal and external balance by using only monetary or fis cal policy.

Answer 73

Flexible exchange rates

Question 74

Using _____will have a greater effect on interest rates in the nation and thus on its rate of growth.

Answer 74

monetary policy

Question 75

The _____ show the various combinations of fiscal and monetary policies required for the nation to achieve internal and external balance, respectively

Answer 75

IB and EB curves

Question 76

The nation should use ____ to achieve internal bal ance and ______ to achieve external balance.

Answer 76

fiscal policy, monetary policy

Question 77

The _____has advocated a coordinated effort among the leading industrial nations to achieve these objectives.

Answer 77

United States

Question 78

Direct controls can be subdivided into

Answer 78

trade controls, exchange controls, and others.

Question 79

refer to tariffs, quotas, advance deposits on imports, and other selective restrictions on the flow of international trade.

Answer 79

Trade controls

Question 80

include restrictions on international capital movements, forward market intervention, and multiple exchange rates.

Answer 80

Exchange con trols

Question 81

sometimes applied to reduce inflation when more general policies have failed are price and wage controls.

Answer 81

Other direct controls

Question 82

In general, direct controls lead to ____ because they frequently interfere with the operation of the market mechanism.

Answer 82

inefficiencies