Question 1

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. B

Question 2

Under Bretton Woods,

Accepted Answer

A)  any foreign country cannot devalue its currency against the dollar in conditions of "fundamental disequilibrium." 
B)  any foreign country could devalue its currency against the dollar in conditions of "fundamental disequilibrium," but the system's rules did not give the United States the option of devaluing against foreign currencies. 
C)  any foreign country could devalue its currency against the dollar in conditions of "fundamental disequilibrium," and the system's rules did give the United States the same option of devaluing against foreign currencies. 
D)  the U.S. could devalue its currency against the foreign currencies in conditions of "fundamental disequilibrium." 
E)  any foreign country can revalue its currency against the dollar in conditions of "fundamental disequilibrium." 
A)  any foreign country cannot devalue its currency against the dollar in conditions of "fundamental disequilibrium." 
B)  any foreign country could devalue its currency against the dollar in conditions of "fundamental disequilibrium," but the system's rules did not give the United States the option of devaluing against foreign currencies. 
C)  any foreign country could devalue its currency against the dollar in conditions of "fundamental disequilibrium," and the system's rules did give the United States the same option of devaluing against foreign currencies. 
D)  the U.S. could devalue its currency against the foreign currencies in conditions of "fundamental disequilibrium." 
E)  any foreign country can revalue its currency against the dollar in conditions of "fundamental disequilibrium." B

Question 3

An expenditure-changing policy

Accepted Answer

A)  alters the direction of the economy's total demand for goods and services. 
B)  alters the level of the economy's total demand for goods and services. 
C)  has no effect on aggregate demand. 
D)  is the same thing as an expenditure-switching policy. 
E)  affects aggregate supply but not aggregate demand. 
A)  alters the direction of the economy's total demand for goods and services. 
B)  alters the level of the economy's total demand for goods and services. 
C)  has no effect on aggregate demand. 
D)  is the same thing as an expenditure-switching policy. 
E)  affects aggregate supply but not aggregate demand. B

Question 4

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

Accepted Answer

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

Question 5

Which one of the following statements is TRUE?

Accepted Answer

A)  Inflation but not deflation can occur even under conditions of full employment. 
B)  Deflation but not inflation can occur even under conditions of full employment. 
C)  Inflation or deflation can occur even under conditions of full employment. 
D)  Inflation can occur even under conditions of full employment only in the long run. 
E)  Inflation does not coincide with periods of high unemployment levels. 
A)  Inflation but not deflation can occur even under conditions of full employment. 
B)  Deflation but not inflation can occur even under conditions of full employment. 
C)  Inflation or deflation can occur even under conditions of full employment. 
D)  Inflation can occur even under conditions of full employment only in the long run. 
E)  Inflation does not coincide with periods of high unemployment levels.

Question 6

"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

True. One example is Volcker i

Question 7

Governments prefer to avoid excessive current account surpluses because

Accepted Answer

A)  the returns to domestic savings are more difficult to tax than those on assets abroad. 
B)  an addition to the home capital stock may increase domestic unemployment and therefore lead to higher national income. 
C)  foreign investment in one firm may have beneficial technological spillover effects on other foreign producers that the investing firm does not capture. 
D)  an addition to the home capital stock may reduce domestic unemployment and therefore lead to higher national income. 
E)  domestic savings increase with more investment abroad. 
A)  the returns to domestic savings are more difficult to tax than those on assets abroad. 
B)  an addition to the home capital stock may increase domestic unemployment and therefore lead to higher national income. 
C)  foreign investment in one firm may have beneficial technological spillover effects on other foreign producers that the investing firm does not capture. 
D)  an addition to the home capital stock may reduce domestic unemployment and therefore lead to higher national income. 
E)  domestic savings increase with more investment abroad.

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

Countries with the

Accepted Answer

A)  biggest deflations and output contractions are countries which were never on the gold standard until 1936. 
B)  biggest inflations and output contractions are countries which were on the gold standard until 1936. 
C)  lowest deflations and output contractions are countries which were on the gold standard until 1936. 
D)  biggest deflations and output increases are countries which were on the gold standard until 1936. 
E)  biggest deflations and output contractions are countries which stayed on the gold standard until 1936. 
A)  biggest deflations and output contractions are countries which were never on the gold standard until 1936. 
B)  biggest inflations and output contractions are countries which were on the gold standard until 1936. 
C)  lowest deflations and output contractions are countries which were on the gold standard until 1936. 
D)  biggest deflations and output increases are countries which were on the gold standard until 1936. 
E)  biggest deflations and output contractions are countries which stayed on the gold standard until 1936.

Question 10

Advocates of floating rate suggested it is favorable for economies for all of the following reasons EXCEPT

Accepted Answer

A)  it discourages attack from foreign exchange speculators because of the fact that exchange rate adjustment is immediate. 
B)  it helps stabilize the shock effect on unemployment in case of economic changes such as a fall in export demand. 
C)  it automatically matches the domestic inflation with ongoing foreign inflation. 
D)  it gives every country the opportunity to guide its own monetary conditions at home. 
E)  it brings the LR exchange rate to the level predicted by PPP without government policy decisions. 
A)  it discourages attack from foreign exchange speculators because of the fact that exchange rate adjustment is immediate. 
B)  it helps stabilize the shock effect on unemployment in case of economic changes such as a fall in export demand. 
C)  it automatically matches the domestic inflation with ongoing foreign inflation. 
D)  it gives every country the opportunity to guide its own monetary conditions at home. 
E)  it brings the LR exchange rate to the level predicted by PPP without government policy decisions.

Question 11

Why do governments prefer to avoid excessive current account surpluses?
 Or, why are growing domestic claims to foreign wealth ever a problem?

Accepted Answer

For a given level of national saving, an

Question 12

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 13

Countries with

Accepted Answer

A)  strong investment opportunities should invest little at home and channel their savings into more productive investment activity abroad. 
B)  strong investment opportunities should invest more at home and less abroad. 
C)  weak investment opportunities should invest more at home. 
D)  weak investment opportunities should invest little abroad. 
E)  countries with productive investment should invest exclusively at home. 
A)  strong investment opportunities should invest little at home and channel their savings into more productive investment activity abroad. 
B)  strong investment opportunities should invest more at home and less abroad. 
C)  weak investment opportunities should invest more at home. 
D)  weak investment opportunities should invest little abroad. 
E)  countries with productive investment should invest exclusively at home.

Question 14

The AA schedule shows

Accepted Answer

A)  interest rate and output pairs at which the foreign exchange market and the domestic money market are in equilibrium. 
B)  exchange rate and output pairs at which the foreign exchange market and the domestic money market are in equilibrium. 
C)  interest rate and output pairs at which only the foreign exchange market is in equilibrium. 
D)  exchange rate and output pairs at which only the foreign exchange market is in equilibrium. 
E)  exchange rate and output pairs at which only the domestic money market are in equilibrium. 
A)  interest rate and output pairs at which the foreign exchange market and the domestic money market are in equilibrium. 
B)  exchange rate and output pairs at which the foreign exchange market and the domestic money market are in equilibrium. 
C)  interest rate and output pairs at which only the foreign exchange market is in equilibrium. 
D)  exchange rate and output pairs at which only the foreign exchange market is in equilibrium. 
E)  exchange rate and output pairs at which only the domestic money market are in equilibrium.

Question 15

Which of the two features of the IMF Articles of Agreement helped promote flexibility in external adjustment?

Accepted Answer

A)  IMF members helped countries maintain full employment. 
B)  IMF allowed countries to attain internal balance. 
C)  New countries would enter the agreement if they fixed their exchange rate. 
D)  IMF members contributed their currency to form a pool of resources that IMF could lend to countries in need and parities in the exchange rate against the dollar could be adjusted with agreement of IMF. 
E)  IMF members argued against the use of floating exchange rates. 
A)  IMF members helped countries maintain full employment. 
B)  IMF allowed countries to attain internal balance. 
C)  New countries would enter the agreement if they fixed their exchange rate. 
D)  IMF members contributed their currency to form a pool of resources that IMF could lend to countries in need and parities in the exchange rate against the dollar could be adjusted with agreement of IMF. 
E)  IMF members argued against the use of floating exchange rates.

Question 16

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 17

"The line distinguishing external from internal goals can be fuzzy." Discuss.

Accepted Answer

This statement is true. For ex

Question 18

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 19

The "rules of the game" under the gold standard can best be described as which of the following:

Accepted Answer

A)  selling domestic assets in a deficit and buying assets in a surplus. 
B)  slowing down the automatic adjustments processes inherent in the gold standard. 
C)  selling domestic assets in order to accumulate gold. 
D)  selling foreign assets in a deficit and buying foreign assets in a surplus. 
E)  selling domestic assets in a surplus. 
A)  selling domestic assets in a deficit and buying assets in a surplus. 
B)  slowing down the automatic adjustments processes inherent in the gold standard. 
C)  selling domestic assets in order to accumulate gold. 
D)  selling foreign assets in a deficit and buying foreign assets in a surplus. 
E)  selling domestic assets in a surplus.

Question 20

Refer to the payoff matrix below, which ________ a prisoner's dilemma. If both countries go it alone, Home will choose Policy ________ and Foreign will choose Policy ________.

Accepted Answer

A)  is; 1; A 
B)  is; 2; B 
C)  is; 1; B 
D)  is not; 2; B 
E)  is not; 1; A 
A)  is; 1; A 
B)  is; 2; B 
C)  is; 1; B 
D)  is not; 2; B 
E)  is not; 1; A

Exam 19: International Monetary Systems: an Historical Overview

Under flexible exchange rate regime, a money-induced

Under Bretton Woods,

An expenditure-changing policy

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

Which one of the following statements is TRUE?

"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.

Governments prefer to avoid excessive current account surpluses because

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

Countries with the

Advocates of floating rate suggested it is favorable for economies for all of the following reasons EXCEPT

Why do governments prefer to avoid excessive current account surpluses? Or, why are growing domestic claims to foreign wealth ever a problem?

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

Countries with

The AA schedule shows

Which of the two features of the IMF Articles of Agreement helped promote flexibility in external adjustment?

"The line distinguishing external from internal goals can be fuzzy." Discuss.

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

The "rules of the game" under the gold standard can best be described as which of the following:

Refer to the payoff matrix below, which ________ a prisoner's dilemma. If both countries go it alone, Home will choose Policy ________ and Foreign will choose Policy ________.

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

Filters

Refer to the payoff matrix below, which a prisoner's dilemma. If both countries go it alone, Home will choose Policy and Foreign will choose Policy .