Question 1

The euro is

Accepted Answer

A) the currency of Italy. 
B) the rate at which the French central bank makes discount loans. 
C) the common European currency. 
D) the name of the European central bank. 
A) the currency of Italy. 
B) the rate at which the French central bank makes discount loans. 
C) the common European currency. 
D) the name of the European central bank.

Question 2

A central bank might attempt to offset an increase in the cost of foreign goods by

Accepted Answer

A) selling its own currency in the foreign-exchange market. 
B) buying its own currency in the foreign-exchange market. 
C) lowering domestic interest rates. 
D) raising the prices of domestic goods by a similar amount. 
A) selling its own currency in the foreign-exchange market. 
B) buying its own currency in the foreign-exchange market. 
C) lowering domestic interest rates. 
D) raising the prices of domestic goods by a similar amount.

Question 3

If the central bank buys foreign assets,

Accepted Answer

A) the domestic monetary base will decline. 
B) domestic short-term interest rates will decline. 
C) the foreign-exchange value of the domestic currency will rise. 
D) its holdings of international reserves will rise. 
A) the domestic monetary base will decline. 
B) domestic short-term interest rates will decline. 
C) the foreign-exchange value of the domestic currency will rise. 
D) its holdings of international reserves will rise.

Question 4

Under a European monetary union,

Accepted Answer

A) European central banks would retain most of the authority they currently have. 
B) regional shocks to demand would have a greater impact on income and employment in member countries. 
C) the currencies of member countries would float independently against the dollar. 
D) the gold standard would be reestablished. 
A) European central banks would retain most of the authority they currently have. 
B) regional shocks to demand would have a greater impact on income and employment in member countries. 
C) the currencies of member countries would float independently against the dollar. 
D) the gold standard would be reestablished.

Question 5

If the Fed wants to reduce the value of the dollar, it will

Accepted Answer

A) sell foreign assets and buy dollars. 
B) sell dollars and buy foreign assets. 
C) buy foreign assets and also buy dollars. 
D) sell foreign assets and also sell dollars. 
A) sell foreign assets and buy dollars. 
B) sell dollars and buy foreign assets. 
C) buy foreign assets and also buy dollars. 
D) sell foreign assets and also sell dollars.

Question 6

Capital inflow restrictions

Accepted Answer

A) receive less support from economists than full capital controls. 
B) may lessen domestic lending booms and risk-taking by domestic banks. 
C) were imposed in the United States during the late 1990s. 
D) were imposed in Europe in May 2000. 
A) receive less support from economists than full capital controls. 
B) may lessen domestic lending booms and risk-taking by domestic banks. 
C) were imposed in the United States during the late 1990s. 
D) were imposed in Europe in May 2000.

Question 7

In the U.S. balance-of-payments accounts, the statistical discrepancy

Accepted Answer

A) equals the capital account balance minus the current account balance. 
B) equals the current account balance minus the capital account balance. 
C) probably reflects hidden capital flows. 
D) must equal zero. 
A) equals the capital account balance minus the current account balance. 
B) equals the current account balance minus the capital account balance. 
C) probably reflects hidden capital flows. 
D) must equal zero.

Question 8

Why has the IMF come in for widespread criticism for its handling of the Asian financial crisis?

Accepted Answer

A) It refused to make loans to any of the countries whose currencies were under speculative attack. 
B) Its policies did not sufficiently punish speculators with losses, giving rise to moral hazard. 
C) Its policies led to unsustainably low interest rates in a number of Asian countries. 
D) Its policies failed to lead to sufficient hardship for citizens in a number of Asian countries, giving rise to moral hazard. 
A) It refused to make loans to any of the countries whose currencies were under speculative attack. 
B) Its policies did not sufficiently punish speculators with losses, giving rise to moral hazard. 
C) Its policies led to unsustainably low interest rates in a number of Asian countries. 
D) Its policies failed to lead to sufficient hardship for citizens in a number of Asian countries, giving rise to moral hazard.

Question 9

Members of the ERM

Accepted Answer

A) agreed to buy and sell gold at a fixed rate. 
B) promised to maintain the values of their currencies within a fixed range. 
C) attempted to maintain a fixed exchange rate against the dollar. 
D) all agreed to charge the same interest rate on central bank loans. 
A) agreed to buy and sell gold at a fixed rate. 
B) promised to maintain the values of their currencies within a fixed range. 
C) attempted to maintain a fixed exchange rate against the dollar. 
D) all agreed to charge the same interest rate on central bank loans.

Question 10

In the early 1930s

Accepted Answer

A) countries that abandoned the gold standard suffered severe inflation. 
B) countries that tried to defend the gold standard suffered more depression than countries that abandoned the gold standard. 
C) the gold standard was abandoned by every major industrial country except England. 
D) the United States was the first major industrial country to abandon the gold standard. 
A) countries that abandoned the gold standard suffered severe inflation. 
B) countries that tried to defend the gold standard suffered more depression than countries that abandoned the gold standard. 
C) the gold standard was abandoned by every major industrial country except England. 
D) the United States was the first major industrial country to abandon the gold standard.

Question 11

An unsterilized intervention in which the central bank sells foreign assets to purchase domestic currency will result in

Accepted Answer

A) higher domestic interest rates. 
B) lower domestic interest rates. 
C) an increase in the money supply. 
D) lower domestic interest rates and an increase in the money supply. 
A) higher domestic interest rates. 
B) lower domestic interest rates. 
C) an increase in the money supply. 
D) lower domestic interest rates and an increase in the money supply.

Question 12

Which of the following is true of the U.S. balance of payments?

Accepted Answer

A) It includes as receipts all inflows of funds from foreigners to the United States. 
B) It includes as receipts only inflows of funds used to purchase U.S. produced goods and services. 
C) It includes as receipts inflows of funds used to purchase U.S. goods or services or to acquire U.S. assets but not funds received as unilateral transfers. 
D) It includes as receipts inflows of funds used to purchase U.S. goods or services and funds received as unilateral transfers but not inflows of funds used to acquire U.S. assets. 
A) It includes as receipts all inflows of funds from foreigners to the United States. 
B) It includes as receipts only inflows of funds used to purchase U.S. produced goods and services. 
C) It includes as receipts inflows of funds used to purchase U.S. goods or services or to acquire U.S. assets but not funds received as unilateral transfers. 
D) It includes as receipts inflows of funds used to purchase U.S. goods or services and funds received as unilateral transfers but not inflows of funds used to acquire U.S. assets.

Question 13

In what sense does the IMF act as a lender of last resort? How might the IMF's actions during the Mexican crisis of the mid-1990s have contributed to the Asian currency crisis a few years later?

Accepted Answer

The IMF acts as an international lender

Exam 22: The International Financial System and Monetary Policy

The euro is

A central bank might attempt to offset an increase in the cost of foreign goods by

If the central bank buys foreign assets,

Under a European monetary union,

If the Fed wants to reduce the value of the dollar, it will

Capital inflow restrictions

In the U.S. balance-of-payments accounts, the statistical discrepancy

Why has the IMF come in for widespread criticism for its handling of the Asian financial crisis?

Members of the ERM

In the early 1930s

An unsterilized intervention in which the central bank sells foreign assets to purchase domestic currency will result in

Which of the following is true of the U.S. balance of payments?

In what sense does the IMF act as a lender of last resort? How might the IMF's actions during the Mexican crisis of the mid-1990s have contributed to the Asian currency crisis a few years later?

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters