Question 1

Suppose Greece was not part of the Eurozone, and it was facing a possible financial crisis. Which of the following would not have been used to fix the crisis?

Accepted Answer

A) Using monetary policy to grow the economy 
B) Allowing its currency to weaken in order to remain competitive 
C) Allowing its currency to appreciate in order to remain competitive 
D) Eliminating the fixed exchange rate 
A) Using monetary policy to grow the economy 
B) Allowing its currency to weaken in order to remain competitive 
C) Allowing its currency to appreciate in order to remain competitive 
D) Eliminating the fixed exchange rate

Question 2

Suppose that the rate of inflation in Japan is 1 percent and the rate of inflation in the United States is 3 percent. If the real exchange rate remains constant, the value of the U.S. dollar relative to the yen must:

Accepted Answer

A) rise by 2 percent. 
B) fall by 2 percent. 
C) rise by 4 percent. 
D) fall by 4 percent. 
A) rise by 2 percent. 
B) fall by 2 percent. 
C) rise by 4 percent. 
D) fall by 4 percent.

Question 3

Expansionary fiscal policy tends to:

Accepted Answer

A) reduce both U.S. interest rates and U.S. capital inflows. 
B) reduce U.S. interest rates but increase U.S. capital inflows. 
C) increase U.S. interest rates but reduce U.S. capital inflows. 
D) increase both U.S. interest rates and U.S. capital inflows. 
A) reduce both U.S. interest rates and U.S. capital inflows. 
B) reduce U.S. interest rates but increase U.S. capital inflows. 
C) increase U.S. interest rates but reduce U.S. capital inflows. 
D) increase both U.S. interest rates and U.S. capital inflows.

Question 4

A country with limited official reserves is better off pursuing fixed exchange rates.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is a disadvantage of the European Monetary Union to member countries?

Accepted Answer

A) A reduced likelihood of conflict between members 
B) Less monetary independence for each member 
C) Lower cost of exchanging currencies 
D) Greater price transparency 
A) A reduced likelihood of conflict between members 
B) Less monetary independence for each member 
C) Lower cost of exchanging currencies 
D) Greater price transparency

Question 6

Contractionary monetary policy:

Accepted Answer

A) lowers the U.S. interest rate and increases the U.S. exchange rate. 
B) lowers the U.S. interest rate and decreases the U.S. exchange rate. 
C) increases the U.S. interest rate and decreases the U.S. exchange rate. 
D) increases the U.S. interest rate and increases the U.S. exchange rate. 
A) lowers the U.S. interest rate and increases the U.S. exchange rate. 
B) lowers the U.S. interest rate and decreases the U.S. exchange rate. 
C) increases the U.S. interest rate and decreases the U.S. exchange rate. 
D) increases the U.S. interest rate and increases the U.S. exchange rate.

Question 7

Refer to the graph shown. To maintain the price of euros at $1.00, the government must:

Accepted Answer

A) buy Q1 - Q0 euros. 
B) buy Q1 - Q2 euros. 
C) sell Q2 - Q0 euros. 
D) do nothing. 
A) buy Q1 - Q0 euros. 
B) buy Q1 - Q2 euros. 
C) sell Q2 - Q0 euros. 
D) do nothing.

Question 8

In the 1990s, inflation in many Latin American countries fell to about 10 to 15 percent per year, compared to previous rates of up to 1,000 percent a year in the 1980s. You would expect that as this occurred, the value of many Latin American currencies would:

Accepted Answer

A) have fallen more rapidly. 
B) have fallen less rapidly. 
C) not be affected. 
D) move unpredictably. 
A) have fallen more rapidly. 
B) have fallen less rapidly. 
C) not be affected. 
D) move unpredictably.

Question 9

Expansionary fiscal policy definitely raises the exchange rate.

Accepted Answer

A) True 
 B)False

Question 10

It is impossible for a country to have a current account surplus and a balance of payments deficit at the same time.

Accepted Answer

A) True 
 B)False

Question 11

In 1923, Germany experienced a very severe inflation. As prices in Germany rose, the demand in the foreign exchange market for Reichsmarks, the German currency of the time:

Accepted Answer

A) rose and the supply of them fell, decreasing their value. 
B) rose and the supply of them also rose, decreasing their value. 
C) fell and the supply of them also fell, increasing their value. 
D) fell and the supply of them rose, decreasing their value. 
A) rose and the supply of them fell, decreasing their value. 
B) rose and the supply of them also rose, decreasing their value. 
C) fell and the supply of them also fell, increasing their value. 
D) fell and the supply of them rose, decreasing their value.

Exam 35: International Financial Policy

Suppose Greece was not part of the Eurozone, and it was facing a possible financial crisis. Which of the following would not have been used to fix the crisis?

Suppose that the rate of inflation in Japan is 1 percent and the rate of inflation in the United States is 3 percent. If the real exchange rate remains constant, the value of the U.S. dollar relative to the yen must:

Expansionary fiscal policy tends to:

A country with limited official reserves is better off pursuing fixed exchange rates.

Which of the following is a disadvantage of the European Monetary Union to member countries?

Contractionary monetary policy:

Refer to the graph shown. To maintain the price of euros at $1.00, the government must:

In the 1990s, inflation in many Latin American countries fell to about 10 to 15 percent per year, compared to previous rates of up to 1,000 percent a year in the 1980s. You would expect that as this occurred, the value of many Latin American currencies would:

Expansionary fiscal policy definitely raises the exchange rate.

It is impossible for a country to have a current account surplus and a balance of payments deficit at the same time.

In 1923, Germany experienced a very severe inflation. As prices in Germany rose, the demand in the foreign exchange market for Reichsmarks, the German currency of the time:

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