Question 1

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

Accepted Answer

A)  output actually falls less under fixed rate than under floating rate. 
B)  output actually falls more under fixed rate than under floating rate. 
C)  output actually remains the same under fixed rate than under floating rate. 
D)  the currency value grows in a fixed rate system and falls in a flexible system. 
E)  output grows in a fixed rate system and falls in a flexible system. 
A)  output actually falls less under fixed rate than under floating rate. 
B)  output actually falls more under fixed rate than under floating rate. 
C)  output actually remains the same under fixed rate than under floating rate. 
D)  the currency value grows in a fixed rate system and falls in a flexible system. 
E)  output grows in a fixed rate system and falls in a flexible system.

Question 2

By internal balance, most economists mean

Accepted Answer

A)  full employment. 
B)  price stability. 
C)  full employment and price stability. 
D)  full employment and moderate increase in prices. 
E)  full employment and high disposable income. 
A)  full employment. 
B)  price stability. 
C)  full employment and price stability. 
D)  full employment and moderate increase in prices. 
E)  full employment and high disposable income.

Question 3

-Refer to the above figure. Use the DD-AA model to examine and compare the response of an economy under fixed and floating exchange rate to a permanent fall in foreign demand for its exports.

Accepted Answer

The DD curve shifts to the left. Under f

Question 4

Why do governments prefer to avoid current account deficits that are too large?

Accepted Answer

A current account deficit may pose no pr

Question 5

Explain why the United States dollar became the postwar world's key currency.

Accepted Answer

(1) The early convertibility of the U.S.

Question 6

Explain how a country with a current account deficit is a ripe candidate for currency devaluation.

Accepted Answer

If, for example, Great Britain had a cur

Question 7

Under flexible exchange rate regime, a money-induced

Accepted Answer

A)  decrease in U.S. prices causes an immediate appreciation of the foreign currencies against the dollar. 
B)  increase in U.S. prices causes an immediate appreciation of the foreign currencies against the dollar. 
C)  increase in U.S. prices causes an eventual appreciation of the foreign currencies against the dollar. 
D)  increase in U.S. prices causes an eventual depreciation of the foreign currencies against the dollar. 
E)  decrease in U.S. prices causes no change in foreign exchange rate. 
A)  decrease in U.S. prices causes an immediate appreciation of the foreign currencies against the dollar. 
B)  increase in U.S. prices causes an immediate appreciation of the foreign currencies against the dollar. 
C)  increase in U.S. prices causes an eventual appreciation of the foreign currencies against the dollar. 
D)  increase in U.S. prices causes an eventual depreciation of the foreign currencies against the dollar. 
E)  decrease in U.S. prices causes no change in foreign exchange rate.

Question 8

Until the United States Civil War, The Unites States had a

Accepted Answer

A)  gold-based monetary standard. 
B)  silver-based monetary standard. 
C)  bimetallic monetary standard consisting of silver and gold. 
D)  bimetallic monetary standard consisting of copper and silver. 
E)  bimetallic monetary standard consisting of copper and gold. 
A)  gold-based monetary standard. 
B)  silver-based monetary standard. 
C)  bimetallic monetary standard consisting of silver and gold. 
D)  bimetallic monetary standard consisting of copper and silver. 
E)  bimetallic monetary standard consisting of copper and gold.

Question 9

The current account surplus is

Accepted Answer

A)  an increasing function of disposable income and an increasing function of the real exchange rate. 
B)  a decreasing function of disposable income and a decreasing function of the real exchange rate. 
C)  a decreasing function of disposable income and an increasing function of the real exchange rate. 
D)  only a decreasing function of disposable income. 
E)  only an increasing function of the real exchange rate. 
A)  an increasing function of disposable income and an increasing function of the real exchange rate. 
B)  a decreasing function of disposable income and a decreasing function of the real exchange rate. 
C)  a decreasing function of disposable income and an increasing function of the real exchange rate. 
D)  only a decreasing function of disposable income. 
E)  only an increasing function of the real exchange rate.

Question 10

Imagine a world with two large countries, Home and Foreign. Evaluate how Home's macroeconomic policies affect Foreign. Compare the small and the large country cases; consider both permanent monetary and fiscal policies.

Accepted Answer

Note that since the two countries are la

Question 11

A current account deficit

Accepted Answer

A)  will not pose a problem, especially if it is accompanied by an expansionary fiscal policy. 
B)  may pose no problem if the borrowed funds are channeled into productive domestic investment projects that pay for themselves with the revenue they generate in the future. 
C)  may still pose a problem, even if the borrowed funds are channeled into productive domestic investment projects. 
D)  There is no relation between current account surplus and between savings and investment. 
E)  will pose a problem because the country is borrowing funds from the rest of the world that it won't be able to pay back later. 
A)  will not pose a problem, especially if it is accompanied by an expansionary fiscal policy. 
B)  may pose no problem if the borrowed funds are channeled into productive domestic investment projects that pay for themselves with the revenue they generate in the future. 
C)  may still pose a problem, even if the borrowed funds are channeled into productive domestic investment projects. 
D)  There is no relation between current account surplus and between savings and investment. 
E)  will pose a problem because the country is borrowing funds from the rest of the world that it won't be able to pay back later.

Question 12

The alteration of exchange rates to move the economy to internal and external balance may lead to all EXCEPT

Accepted Answer

A)  a balance of payments crisis. 
B)  changes in the terms of trade. 
C)  changes in the level of imports or exports. 
D)  changes in interest rates. 
E)  a guaranteed unilateral improvement in economic wealth. 
A)  a balance of payments crisis. 
B)  changes in the terms of trade. 
C)  changes in the level of imports or exports. 
D)  changes in interest rates. 
E)  a guaranteed unilateral improvement in economic wealth.

Question 13

A sudden increase in the U.S. price level

Accepted Answer

A)  makes creditors in dollars better off. 
B)  makes creditors in dollars worse off. 
C)  does not affect creditors in dollars. 
D)  makes creditors in DM worse off. 
E)  makes lenders worse off. 
A)  makes creditors in dollars better off. 
B)  makes creditors in dollars worse off. 
C)  does not affect creditors in dollars. 
D)  makes creditors in DM worse off. 
E)  makes lenders worse off.

Question 14

Under the gold standard era of 1870-1914

Accepted Answer

A)  Tokyo was the center of the international monetary system. 
B)  Paris was the center of the international monetary system. 
C)  Berlin was the center of the international monetary system. 
D)  New York was the center of the international monetary system. 
E)  London was the center of the international monetary system. 
A)  Tokyo was the center of the international monetary system. 
B)  Paris was the center of the international monetary system. 
C)  Berlin was the center of the international monetary system. 
D)  New York was the center of the international monetary system. 
E)  London was the center of the international monetary system.

Question 15

Use the following table to illustrate the importance of macroeconomic policy coordination. Show that the two governments would have been happier if the two of them had adopted looser monetary policies, but given the policies that the other government did adopt, it is not in the interest of any individual government to change its course. Assume that each country wishes to get the biggest reduction in inflation rate at the lowest cost in terms of unemployment. This means that each country maximizes-ΔΠ/ΔU, the inflation reduction per point of increased unemployment.

Accepted Answer

One needs to translate the outcomes of t

Question 16

By external balance, most economists mean

Accepted Answer

A)  avoiding excessive imbalances in international payments. 
B)  balance between exports and imports. 
C)  balance between the trade and service accounts. 
D)  what amounts to fixed exchange rates. 
E)  imbalance in internal transactions. 
A)  avoiding excessive imbalances in international payments. 
B)  balance between exports and imports. 
C)  balance between the trade and service accounts. 
D)  what amounts to fixed exchange rates. 
E)  imbalance in internal transactions.

Question 17

"Fixed exchange rates are not even an option for most countries." Discuss.

Accepted Answer

Durable fixed exchange rate arrangements

Question 18

"A monetary policy is not a policy tool under fixed exchange rates." Discuss.

Accepted Answer

A) True 
 B)False

Question 19

What is the difference between an expenditure-changing policy and an expenditure-switching policy?

Accepted Answer

An expenditure-changing policy alters th

Question 20

The DD schedule shows

Accepted Answer

A)  interest rate and output pairs for which aggregate demand equals aggregate output. 
B)  exchange rate and output pairs for which aggregate demand equals aggregate output. 
C)  exchange rate and output pairs for which aggregate supply equals aggregate output. 
D)  interest rate and output pairs for which aggregate supply equals aggregate output. 
E)  exchange rate and output pairs for which aggregate demand is greater than aggregate output. 
A)  interest rate and output pairs for which aggregate demand equals aggregate output. 
B)  exchange rate and output pairs for which aggregate demand equals aggregate output. 
C)  exchange rate and output pairs for which aggregate supply equals aggregate output. 
D)  interest rate and output pairs for which aggregate supply equals aggregate output. 
E)  exchange rate and output pairs for which aggregate demand is greater than aggregate output.

Exam 19: International Monetary Systems: an Historical Overview

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

By internal balance, most economists mean

-Refer to the above figure. Use the DD-AA model to examine and compare the response of an economy under fixed and floating exchange rate to a permanent fall in foreign demand for its exports.

Why do governments prefer to avoid current account deficits that are too large?

Explain why the United States dollar became the postwar world's key currency.

Explain how a country with a current account deficit is a ripe candidate for currency devaluation.

Under flexible exchange rate regime, a money-induced

Until the United States Civil War, The Unites States had a

The current account surplus is

Imagine a world with two large countries, Home and Foreign. Evaluate how Home's macroeconomic policies affect Foreign. Compare the small and the large country cases; consider both permanent monetary and fiscal policies.

A current account deficit

The alteration of exchange rates to move the economy to internal and external balance may lead to all EXCEPT

A sudden increase in the U.S. price level

Under the gold standard era of 1870-1914

By external balance, most economists mean

"Fixed exchange rates are not even an option for most countries." Discuss.

"A monetary policy is not a policy tool under fixed exchange rates." Discuss.

What is the difference between an expenditure-changing policy and an expenditure-switching policy?

The DD schedule shows

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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