Question

Part I.

When overly expansionary fiscal and monetary policies are joined with a ________ exchange rate system, the various components of economic policy often interact in ways that lead to a crisis followed by a steep recession.

  

a. dollarized

   

b. flexible

   

c. floating

   

d. crawling peg

   

e. managed float

Part II.

In recent years the US has typically run

  

a. a small capital account surplus and a small current account surplus

   

b. a relatively large current account deficit along with a relatively large capital account deficit

  

c. a relatively large capital account surplus but a relatively small balance of payments surpluses or deficits

d. a relatively large current account deficit along with a relatively large balance of payments deficit

Answer 1

Part I

Answer ( D) crawling peg

• When expansionary fiscal and monetary policies are joined with a crawling peg exchange rate system, the various components of economic policy often interact in ways that lead to a crisis followed by a steep recession.
• When a Countries adopt a pegged exchange rate may be more vulnerable to an exchange rate crisis .
• The most common type of macroeconomic imbalance is overly expansionary fiscal policies that create large government budget deficits, often financed by a high growth rate of the money supply.

Part II

ANSWER (C)  a relatively large capital account surplus but a relatively small balance of payments surpluses or deficits.

• US run , large capital surplus and small balance of payments surpluses or deficit. And The U.S. current account has been in deficit in recent years, but it has been offset by a surplus in the U.S. capital account.