Question 1

The case of New Zealand, described in the text, draws what technical conclusion regarding the country's international debt position?

Accepted Answer

Fundamentally, the question is whether or not a country can sustain a current account deficit indefinitely. The conclusion depends upon the country's future prospects. If net exports are expected to rise at a rate sufficient to counteract the effects of debt (including interest payments) over the relevant time period, then deficits could go on for an extended period.

Question 2

The price-specie-flow mechanism

Accepted Answer

A)  is an automatic mechanism for assuring external balance under floating exchange rates. 
B)  is an automatic mechanism for assuring external balance under the gold standard. 
C)  is an automatic mechanism for assuring internal balance under floating exchange rates. 
D)  is an automatic mechanism for assuring internal balance under the gold standard. 
E)  is an automatic mechanism for assuring internal balance under mercantilism. 
A)  is an automatic mechanism for assuring external balance under floating exchange rates. 
B)  is an automatic mechanism for assuring external balance under the gold standard. 
C)  is an automatic mechanism for assuring internal balance under floating exchange rates. 
D)  is an automatic mechanism for assuring internal balance under the gold standard. 
E)  is an automatic mechanism for assuring internal balance under mercantilism. B

Question 3

What is the nature of the trilemma that is encountered when choosing monetary arrangements?

Accepted Answer

A)  Only two of the three aspects of internal and external balance can be accommodated simultaneously. 
B)  Only three of the four aspects of internal and external balance can be accommodated simultaneously. 
C)  Only one of the three aspects of internal and external balance can be accommodated simultaneously. 
D)  Only two of the four aspects of internal and external balance can be accommodated simultaneously. 
E)  Only one of the four aspects of internal and external balance can be accommodated simultaneously. 
A)  Only two of the three aspects of internal and external balance can be accommodated simultaneously. 
B)  Only three of the four aspects of internal and external balance can be accommodated simultaneously. 
C)  Only one of the three aspects of internal and external balance can be accommodated simultaneously. 
D)  Only two of the four aspects of internal and external balance can be accommodated simultaneously. 
E)  Only one of the four aspects of internal and external balance can be accommodated simultaneously. A

Question 4

Due to macroeconomics interdependence between large countries, the effect of a permanent monetary policy expansion by Home is as follows: Home output

Accepted Answer

A)  rises, Home's currency depreciates, and Foreign output may rise or fall. 
B)  falls, Home's currency depreciates, and Foreign output may rise or fall. 
C)  rises, Home's currency appreciates, and Foreign output may rise or fall. 
D)  rises, Home's currency depreciates, and Foreign output rises. 
E)  falls, Home's currency appreciates, and Foreign output may rise or fall. 
A)  rises, Home's currency depreciates, and Foreign output may rise or fall. 
B)  falls, Home's currency depreciates, and Foreign output may rise or fall. 
C)  rises, Home's currency appreciates, and Foreign output may rise or fall. 
D)  rises, Home's currency depreciates, and Foreign output rises. 
E)  falls, Home's currency appreciates, and Foreign output may rise or fall.

Question 5

The case of New Zealand, as described in the text, draws what simple conclusion regarding the country's international debt position?

Accepted Answer

Fundamentally, the question is

Question 6

When all changes in the world are due to

Accepted Answer

A)  fiscal policy, purchasing power parity holds true in the long run. 
B)  monetary policy, purchasing power parity does not hold true in the long run. 
C)  monetary policy, purchasing power parity holds true in the long run. 
D)  monetary policy, purchasing power parity holds true even in the short run. 
E)  fiscal and monetary policy, purchasing power parity holds true in the long run. 
A)  fiscal policy, purchasing power parity holds true in the long run. 
B)  monetary policy, purchasing power parity does not hold true in the long run. 
C)  monetary policy, purchasing power parity holds true in the long run. 
D)  monetary policy, purchasing power parity holds true even in the short run. 
E)  fiscal and monetary policy, purchasing power parity holds true in the long run.

Question 7

Under flexible exchange rate, the response of an economy to a temporary fall in foreign demand for its exports is

Accepted Answer

A)  the currency appreciates, and output falls. 
B)  the currency depreciates, and output falls. 
C)  the currency depreciates, and output increases. 
D)  the currency depreciates, and output remains constant. 
E)  the currency appreciates, and output increases. 
A)  the currency appreciates, and output falls. 
B)  the currency depreciates, and output falls. 
C)  the currency depreciates, and output increases. 
D)  the currency depreciates, and output remains constant. 
E)  the currency appreciates, and output increases.

Question 8

A person holding dollar deposits during the devaluation of the dollar would

Accepted Answer

A)  enjoy a monetary gain. 
B)  see the foreign currency value of dollar assets increase by the amount of the exchange rate change. 
C)  shift their wealth into domestic investments. 
D)  suffer a monetary loss and see the foreign currency value of dollar assets decrease by the amount of the exchange rate change. 
E)  see no change in their investments. 
A)  enjoy a monetary gain. 
B)  see the foreign currency value of dollar assets increase by the amount of the exchange rate change. 
C)  shift their wealth into domestic investments. 
D)  suffer a monetary loss and see the foreign currency value of dollar assets decrease by the amount of the exchange rate change. 
E)  see no change in their investments.

Question 9

A sudden decrease in the U.S. price level

Accepted Answer

A)  makes those with dollar debts worse off. 
B)  makes those with dollar debts better off. 
C)  does not affect those with dollar debts. 
D)  makes those with DM worse off. 
E)  makes creditors worse off. 
A)  makes those with dollar debts worse off. 
B)  makes those with dollar debts better off. 
C)  does not affect those with dollar debts. 
D)  makes those with DM worse off. 
E)  makes creditors worse off.

Question 10

Advocates of flexible exchange rates claim that under flexible exchange rates, a currency

Accepted Answer

A)  depreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing the world demand for them. 
B)  appreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them. 
C)  appreciation caused by decreasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them. 
D)  appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and increasing world demand for them. 
E)  appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and by decreasing world demand for them. 
A)  depreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing the world demand for them. 
B)  appreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them. 
C)  appreciation caused by decreasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them. 
D)  appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and increasing world demand for them. 
E)  appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and by decreasing world demand for them.

Question 11

Advocates of flexible exchange rates claim that under flexible exchange rates

Accepted Answer

A)  the United States would no longer have the same opportunity as other countries to influence its exchange rate against foreign currencies. 
B)  the United States would have the same opportunity as other countries to influence its exchange rate against foreign currencies. 
C)  the United Kingdom would not have the same opportunity as other countries to influence its exchange rate against foreign currencies. 
D)  Germany would not have the same opportunity as other countries to influence its exchange rate against foreign currencies. 
E)  China would have the same opportunity as other countries to influence its exchange rate against foreign currencies. 
A)  the United States would no longer have the same opportunity as other countries to influence its exchange rate against foreign currencies. 
B)  the United States would have the same opportunity as other countries to influence its exchange rate against foreign currencies. 
C)  the United Kingdom would not have the same opportunity as other countries to influence its exchange rate against foreign currencies. 
D)  Germany would not have the same opportunity as other countries to influence its exchange rate against foreign currencies. 
E)  China would have the same opportunity as other countries to influence its exchange rate against foreign currencies.

Question 12

Countries where investment is relatively

Accepted Answer

A)  productive should have current account deficits. 
B)  productive should have current account surpluses. 
C)  unproductive should have current account surpluses. 
D)  productive should balance current account surpluses. 
E)  productive should have low outputs. 
A)  productive should have current account deficits. 
B)  productive should have current account surpluses. 
C)  unproductive should have current account surpluses. 
D)  productive should balance current account surpluses. 
E)  productive should have low outputs.

Question 13

How did the international monetary system influence macroeconomic policy-making and performance during the post-World War II years during which exchange rates were fixed under the Bretton Woods agreement (1946-1973)?

Accepted Answer

In July 1944, representatives of 44 coun

Question 14

Supporters of a floating exchange rate cited all of the following as advantages over the Bretton Woods system EXCEPT

Accepted Answer

A)  each country would be able to choose its own long-run inflation rate. 
B)  parity changes and speculative attacks would no longer be possible. 
C)  countries would be forced to work cooperatively in deciding monetary policy. 
D)  exchange rates would be set symmetrically in foreign markets rather than by government decision. 
E)  governments would not need to export inflation to decrease domestic unemployment. 
A)  each country would be able to choose its own long-run inflation rate. 
B)  parity changes and speculative attacks would no longer be possible. 
C)  countries would be forced to work cooperatively in deciding monetary policy. 
D)  exchange rates would be set symmetrically in foreign markets rather than by government decision. 
E)  governments would not need to export inflation to decrease domestic unemployment.

Question 15

Countries where investment is relatively

Accepted Answer

A)  productive should be net exporters of currently available output. 
B)  unproductive should be net importers of currently available output. 
C)  unproductive should be net exporters of currently available output. 
D)  unproductive should be net exporters of future available output. 
E)  unproductive should focus on their internal balance. 
A)  productive should be net exporters of currently available output. 
B)  unproductive should be net importers of currently available output. 
C)  unproductive should be net exporters of currently available output. 
D)  unproductive should be net exporters of future available output. 
E)  unproductive should focus on their internal balance.

Question 16

The case of New Zealand, described in the text, is concerned with the country's

Accepted Answer

A)  prospects for long term growth. 
B)  ability to sustain current account deficits. 
C)  unproductive industrial sector and its prospects for long-run growth. 
D)  labor productivity. 
E)  exchange rate volatility relative to other currencies. 
A)  prospects for long term growth. 
B)  ability to sustain current account deficits. 
C)  unproductive industrial sector and its prospects for long-run growth. 
D)  labor productivity. 
E)  exchange rate volatility relative to other currencies.

Question 17

If the demand for Home exports decreased abroad, the Home fall in output would be greatest

Accepted Answer

A)  if the decrease was temporary and the exchange rate was fixed. 
B)  if the decrease was temporary and the exchange rate was floating. 
C)  if the decrease was permanent and the exchange rate was fixed. 
D)  if the decrease was permanent and the exchange rate was floating. 
E)  if the decrease was permanent and the exchange rate was high. 
A)  if the decrease was temporary and the exchange rate was fixed. 
B)  if the decrease was temporary and the exchange rate was floating. 
C)  if the decrease was permanent and the exchange rate was fixed. 
D)  if the decrease was permanent and the exchange rate was floating. 
E)  if the decrease was permanent and the exchange rate was high.

Question 18

A convertible currency is a currency that may be freely exchanged for

Accepted Answer

A)  domestic assets. 
B)  only silver. 
C)  only copper. 
D)  national currency. 
E)  foreign currencies. 
A)  domestic assets. 
B)  only silver. 
C)  only copper. 
D)  national currency. 
E)  foreign currencies.

Question 19

Fiscal expansion

Accepted Answer

A)  stimulates aggregate demand and causes output to decline. 
B)  decreases aggregate demand and causes output to decline. 
C)  stimulates aggregate demand and causes output to rise. 
D)  decreases aggregate demand and causes output to rise. 
E)  decreases government expenditures. 
A)  stimulates aggregate demand and causes output to decline. 
B)  decreases aggregate demand and causes output to decline. 
C)  stimulates aggregate demand and causes output to rise. 
D)  decreases aggregate demand and causes output to rise. 
E)  decreases government expenditures.

Question 20

Under fixed exchange rate, the response of an economy to a temporary fall in foreign demand for its exports is

Accepted Answer

A)  the currency appreciates, and output falls. 
B)  the currency depreciates, and output falls. 
C)  the currency remains the same, and output decreases. 
D)  the currency depreciates, and output remains constant. 
E)  the currency appreciates, and output remains the same. 
A)  the currency appreciates, and output falls. 
B)  the currency depreciates, and output falls. 
C)  the currency remains the same, and output decreases. 
D)  the currency depreciates, and output remains constant. 
E)  the currency appreciates, and output remains the same.

Exam 19: International Monetary Systems: an Historical Overview

The case of New Zealand, described in the text, draws what technical conclusion regarding the country's international debt position?

The price-specie-flow mechanism

What is the nature of the trilemma that is encountered when choosing monetary arrangements?

Due to macroeconomics interdependence between large countries, the effect of a permanent monetary policy expansion by Home is as follows: Home output

The case of New Zealand, as described in the text, draws what simple conclusion regarding the country's international debt position?

When all changes in the world are due to

Under flexible exchange rate, the response of an economy to a temporary fall in foreign demand for its exports is

A person holding dollar deposits during the devaluation of the dollar would

A sudden decrease in the U.S. price level

Advocates of flexible exchange rates claim that under flexible exchange rates, a currency

Advocates of flexible exchange rates claim that under flexible exchange rates

Countries where investment is relatively

How did the international monetary system influence macroeconomic policy-making and performance during the post-World War II years during which exchange rates were fixed under the Bretton Woods agreement (1946-1973)?

Supporters of a floating exchange rate cited all of the following as advantages over the Bretton Woods system EXCEPT

Countries where investment is relatively

The case of New Zealand, described in the text, is concerned with the country's

If the demand for Home exports decreased abroad, the Home fall in output would be greatest

A convertible currency is a currency that may be freely exchanged for

Fiscal expansion

Under fixed exchange rate, the response of an economy to a temporary fall in foreign demand for its exports is

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

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