CBE Macroeconomics 5

Question 1

The Mundell-Fleming model predicts that under a floating exchange rate regime, fiscal policy is:

Accepted Answer

Ineffective because currency appreciation crowds out net exports

Answer

Under floating rates with perfect capital mobility, fiscal expansion raises interest rates, attracts capital, appreciates the currency, and reduces net exports—fully crowding out fiscal stimulus.

Question 2

Which of the following is an example of a supply-side economic policy?

Accepted Answer

Reducing personal income tax rates to boost labor supply

Answer

Supply-side policies aim to increase productive capacity; cutting marginal tax rates to incentivize work and investment is a textbook supply-side measure.

Question 3

If the economy's actual output exceeds its potential output, the output gap is:

Accepted Answer

Positive, indicating inflationary pressure

Answer

A positive output gap means the economy is running above capacity, putting upward pressure on wages and prices.

Question 4

Which of the following would INCREASE the money multiplier in the banking system?

Accepted Answer

A decrease in the required reserve ratio

Answer

The money multiplier is approximately 1/reserve ratio; lowering the required reserve ratio allows banks to lend more of each deposit, expanding the multiplier.

Question 5

In the context of sovereign debt, 'debt monetization' refers to:

Accepted Answer

The central bank purchasing government bonds to finance deficits, expanding the money supply

Answer

Debt monetization occurs when the central bank buys government debt, effectively 'printing money' to finance deficits, which can be inflationary.

(CBE) Certified Business Economist Practice Test

(CBE) Certified Business Economist Practice Test

CBE Macroeconomics 5