Reference no: EM132405637

1. The option to use expansionary fiscal policy is limited when which of the following occurs? A. Continual budget surpluses leading to low public debt. B. Temporary budget deficits leading to low public debt. C. Continual budget deficits leading to high public debt. D. Temporary budget deficits leading to high public debt. E. Continual budget surpluses leading to high public debt.

2. Assume the Marshall-Lerner condition holds. Which of the following would occur as a result of a depreciation in the real exchange rate? A. An increase in domestic output. B. An increase in the quantity of imports. C. A deterioration of the trade balance. D. All of the above. E. None of the above.

3. In an open economy under flexible exchange rates, contractionary monetary policy in the short run will always cause: A. an increase in the exchange rate. B. a decrease in output. C. an increase in the interest rate. D. all of the above. E. both B. and C.

4. Changes in which of the following variables will cause the current nominal exchange rate to change? A. Future expected domestic nominal interest rates. B. Future expected foreign nominal interest rates. C. The future expected long-run nominal exchange rate, Eet+n . D. All of the above. E. None of the above.