Question 1

Which of the following is NOT a result of a permanent fall in foreign demand on one country's exports under floating exchange rate?

Accepted Answer

A)  The DD curve shifts to the left due to reduction of aggregate demand. 
B)  The AA curve shifts upwards due to the increased expected long-run exchange rate. 
C)  a reduction in output by a smaller degree compared to temporary fall in demand 
D)  depreciation in home country's currency 
E)  a raised level of unemployment 
A)  The DD curve shifts to the left due to reduction of aggregate demand. 
B)  The AA curve shifts upwards due to the increased expected long-run exchange rate. 
C)  a reduction in output by a smaller degree compared to temporary fall in demand 
D)  depreciation in home country's currency 
E)  a raised level of unemployment

Question 2

Countries with large current account surpluses might be viewed by the market as candidates for

Accepted Answer

A)  devaluation. 
B)  revaluation. 
C)  bankruptcy. 
D)  depreciation. 
E)  investment. 
A)  devaluation. 
B)  revaluation. 
C)  bankruptcy. 
D)  depreciation. 
E)  investment.

Question 3

Assume that the government has a target value, X, for the current account surplus.
(a) What is the goal of external balance?
(b) Assume that we are dealing with only the short run, what are the values of P and P∗?
(c) Given fixed P and P   , what would happen if E rises?
(d) Given P and P   , what would happen if T decreases, i.e., an expansionary fiscal policy?
(e) Given P and P   , what would happen if G increases, i.e., an expansionary fiscal policy?
(f) Given all of the above, what is the relation between the exchange rate, E, and fiscal ease, i.e., an increase in G or a reduction in T?
(g) Assume that the economy is in external balance. What will happen if the government maintains its current account at X, but devaluates the domestic currency?
(h) Assume that the economy is at external balance. What will happen if the government raises E?
(i) Assume that the economy is at external balance. What will happen if the government lowers E?

Accepted Answer

(a) The goal of external balance require

Question 4

How did the international monetary system created at Bretton Woods in 1944 allow its members to reconcile their external commitments with their internal goals of full employment and price stability?

Accepted Answer

As the world economy evolved in the year

Question 5

The effects of a decrease in export demand

Accepted Answer

A)  is a powerful argument in favor of fixed rates. 
B)  is a powerful argument in favor of flexible rates. 
C)  shows the difficulties in determining which exchange rate is better. 
D)  is a powerful argument in favor of fixed rates only in the short run. 
E)  is a powerful argument in favor of fixed rates only in the long run. 
A)  is a powerful argument in favor of fixed rates. 
B)  is a powerful argument in favor of flexible rates. 
C)  shows the difficulties in determining which exchange rate is better. 
D)  is a powerful argument in favor of fixed rates only in the short run. 
E)  is a powerful argument in favor of fixed rates only in the long run.

Question 6

Which one of the following statements is TRUE?

Accepted Answer

A)  By devaluing its currency, that is, by lowering the domestic currency price of foreign currency, a country can insulate itself completely from an inflationary increase in foreign prices. 
B)  By revaluing its currency, that is, by increasing the domestic currency price of foreign currency, a country can insulate itself completely from an inflationary increase in foreign prices. 
C)  By revaluing its currency, that is, by lowering the domestic currency price of foreign currency, a country cannot insulate itself completely from an inflationary increase in foreign prices. 
D)  By revaluing its currency, that is, by lowering the domestic currency price of foreign currency, a country can insulate itself completely from an inflationary increase in foreign prices. 
E)  By revaluing its currency, that is, by lowering the domestic currency price of foreign currency, a country cannot insulate itself completely from a harmful decrease in foreign prices. 
A)  By devaluing its currency, that is, by lowering the domestic currency price of foreign currency, a country can insulate itself completely from an inflationary increase in foreign prices. 
B)  By revaluing its currency, that is, by increasing the domestic currency price of foreign currency, a country can insulate itself completely from an inflationary increase in foreign prices. 
C)  By revaluing its currency, that is, by lowering the domestic currency price of foreign currency, a country cannot insulate itself completely from an inflationary increase in foreign prices. 
D)  By revaluing its currency, that is, by lowering the domestic currency price of foreign currency, a country can insulate itself completely from an inflationary increase in foreign prices. 
E)  By revaluing its currency, that is, by lowering the domestic currency price of foreign currency, a country cannot insulate itself completely from a harmful decrease in foreign prices.

Question 7

"No central bank can be indifferent to its currency's value in the foreign exchange market." Discuss.

Accepted Answer

- despite the "Monetary Policy Autonomy"

Question 8

The case of New Zealand, described in the text, asks what question about the country's international debt position?

Accepted Answer

Fundamentally, the question is

Question 9

Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?

Accepted Answer

A)  exchange rate stability 
B)  restrictions on international capital movements 
C)  tariffs and subsidies 
D)  restrictions on the migration of labor 
E)  global inflation 
A)  exchange rate stability 
B)  restrictions on international capital movements 
C)  tariffs and subsidies 
D)  restrictions on the migration of labor 
E)  global inflation

Question 10

Under the price-specie-flow mechanism, what happens when, say, Great Britain's current account surplus is greater than its non-reserve financial account balance?

Accepted Answer

A)  Great Britain's loans will finance all foreign net imports. 
B)  An automatic drop in Great Britain's domestic prices and rise in foreign prices. 
C)  Gold reserves will flow into Great Britain. 
D)  Gold reserves will flow out of Great Britain. 
E)  Great Britain will experience a deficit. 
A)  Great Britain's loans will finance all foreign net imports. 
B)  An automatic drop in Great Britain's domestic prices and rise in foreign prices. 
C)  Gold reserves will flow into Great Britain. 
D)  Gold reserves will flow out of Great Britain. 
E)  Great Britain will experience a deficit.

Question 11

The costs of inflation have been most apparent in the post-war period in countries like

Accepted Answer

A)  Serbia. 
B)  Belgium. 
C)  the United States. 
D)  Canada. 
E)  Japan. 
A)  Serbia. 
B)  Belgium. 
C)  the United States. 
D)  Canada. 
E)  Japan.

Question 12

The collapse of the Bretton Woods system marked

Accepted Answer

A)  the end of floating exchange rates and a move to fixed exchange rates. 
B)  marked the end of fixed exchange rates and a move to floating exchange rates. 
C)  the beginning of the gold standard. 
D)  a plunge in the price of gold. 
E)  the elimination of paper currencies. 
A)  the end of floating exchange rates and a move to fixed exchange rates. 
B)  marked the end of fixed exchange rates and a move to floating exchange rates. 
C)  the beginning of the gold standard. 
D)  a plunge in the price of gold. 
E)  the elimination of paper currencies.

Question 13

How did the international monetary system influence macroeconomic policy-making and performance during the interwar period (1918-1939)?

Accepted Answer

Governments effectively suspended the go

Question 14

Economic experience since 1973 indicates that, under floating exchange rates, symmetry

Accepted Answer

A)  was not attained. 
B)  was attained almost immediately. 
C)  was attained over time as central banks held more U.S. dollars as a reserve currency. 
D)  has been difficult to measure and no consensus has emerged. 
E)  has been attained in foreign countries, but not domestically. 
A)  was not attained. 
B)  was attained almost immediately. 
C)  was attained over time as central banks held more U.S. dollars as a reserve currency. 
D)  has been difficult to measure and no consensus has emerged. 
E)  has been attained in foreign countries, but not domestically.

Question 15

In L. Frank Baum's classic 1900 children's book, The Wonderful Wizard of Oz, the name "oz" is a reference to

Accepted Answer

A)  an ounce (oz.) of gold. 
B)  an ounce (oz.) of silver. 
C)  an ounce (oz.) of copper. 
D)  an ounce (oz.) of gold or silver. 
E)  an ounce (oz.) of wheat. 
A)  an ounce (oz.) of gold. 
B)  an ounce (oz.) of silver. 
C)  an ounce (oz.) of copper. 
D)  an ounce (oz.) of gold or silver. 
E)  an ounce (oz.) of wheat.

Question 16

What is a convertible currency?

Accepted Answer

A CONVERTIBLE CURREN

Question 17

What are the components of the trilemma that is encountered when a country chooses its monetary policy and what is the meaning of the term?

Accepted Answer

The components are (1) exchange rates, (

Question 18

"Even under flexible exchange rate regime, governments could not be indifferent to the behavior of exchange rates and inevitably surrendered some of their policy autonomy in other areas to prevent exchange rate movements they viewed as harmful to their economies." Discuss.

Accepted Answer

A) True 
 B)False

Question 19

Explain how a country with a current account surplus is a ripe candidate for currency revaluation.

Accepted Answer

If a country like Germany had a current

Question 20

Advocates of flexible exchange rates claim that under flexible exchange rates

Accepted Answer

A)  the United States would now be able to set world monetary conditions all by itself. 
B)  Germany would no longer be able to set world monetary conditions all by itself. 
C)  the United Kingdom would no longer be able to set world monetary conditions all by itself. 
D)  the United States would no longer be able to set world monetary conditions all by itself. 
E)  Germany would now be able set world monetary conditions all by itself. 
A)  the United States would now be able to set world monetary conditions all by itself. 
B)  Germany would no longer be able to set world monetary conditions all by itself. 
C)  the United Kingdom would no longer be able to set world monetary conditions all by itself. 
D)  the United States would no longer be able to set world monetary conditions all by itself. 
E)  Germany would now be able set world monetary conditions all by itself.

Exam 19: International Monetary Systems: an Historical Overview

Which of the following is NOT a result of a permanent fall in foreign demand on one country's exports under floating exchange rate?

Countries with large current account surpluses might be viewed by the market as candidates for

How did the international monetary system created at Bretton Woods in 1944 allow its members to reconcile their external commitments with their internal goals of full employment and price stability?

The effects of a decrease in export demand

Which one of the following statements is TRUE?

"No central bank can be indifferent to its currency's value in the foreign exchange market." Discuss.

The case of New Zealand, described in the text, asks what question about the country's international debt position?

Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?

Under the price-specie-flow mechanism, what happens when, say, Great Britain's current account surplus is greater than its non-reserve financial account balance?

The costs of inflation have been most apparent in the post-war period in countries like

The collapse of the Bretton Woods system marked

How did the international monetary system influence macroeconomic policy-making and performance during the interwar period (1918-1939)?

Economic experience since 1973 indicates that, under floating exchange rates, symmetry

In L. Frank Baum's classic 1900 children's book, The Wonderful Wizard of Oz, the name "oz" is a reference to

What is a convertible currency?

What are the components of the trilemma that is encountered when a country chooses its monetary policy and what is the meaning of the term?

"Even under flexible exchange rate regime, governments could not be indifferent to the behavior of exchange rates and inevitably surrendered some of their policy autonomy in other areas to prevent exchange rate movements they viewed as harmful to their economies." Discuss.

Explain how a country with a current account surplus is a ripe candidate for currency revaluation.

Advocates of flexible exchange rates claim that under flexible exchange rates

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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