4. International Economics

Open Economy Macro — Quiz

Test your understanding of open economy macro with 5 practice questions.

Practice Questions

Question 1

Which assumption about the domestic price level is made in the short-run Mundell–Fleming model?

Question 2

Under a fixed exchange rate and perfect capital mobility, what is the short-run effect on output when the central bank unsterilizedly increases the domestic money supply?

Question 3

When foreign income rises in a small open economy, which way does the IS curve shift in the Mundell–Fleming model?

Question 4

Using the balance of payments identity $\mathrm{CA}+\mathrm{KA}+\Delta R=0$, if a country has a current account surplus of 3\\% of GDP and a capital account surplus of 1\\% of GDP, what is the change in reserves as a percentage of GDP?

Question 5

Under a floating exchange rate, what is the effect on the domestic money supply when the central bank unsterilizedly purchases foreign currency?