Question 1

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

Accepted Answer

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

Question 2

A country is said to be in balance of payments equilibrium, when the sum of its current and its

Accepted Answer

A)  non-reserved capital accounts equals zero. 
B)  reserved capital accounts equals zero. 
C)  non-reserved capital accounts equals to the surplus in the capital account. 
D)  non-reserved capital accounts equals to the deficit in the capital account. 
E)  non-reserved capital accounts is higher than the total capital account balance. 
A)  non-reserved capital accounts equals zero. 
B)  reserved capital accounts equals zero. 
C)  non-reserved capital accounts equals to the surplus in the capital account. 
D)  non-reserved capital accounts equals to the deficit in the capital account. 
E)  non-reserved capital accounts is higher than the total capital account balance.

Question 3

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

Accepted Answer

A)  monetary policy oriented towards domestic goals 
B)  exchange rate instability 
C)  tariffs and subsidies 
D)  restrictions on the migration of labor 
E)  global inflation 
A)  monetary policy oriented towards domestic goals 
B)  exchange rate instability 
C)  tariffs and subsidies 
D)  restrictions on the migration of labor 
E)  global inflation

Question 4

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 5

Inflation can occur under conditions of full employment

Accepted Answer

A)  only if the central bank continues to inject money into the economy and the agents' expectations of inflation are supported by the bank's activities. 
B)  only if the central bank continues to inject money into the economy. 
C)  only if the central bank continues to withdraw money from the economy. 
D)  only if the central bank continues to inject money into the economy and all agents expect that inflation will not occur. 
E)  only if the central bank fails to inject money into the economy. 
A)  only if the central bank continues to inject money into the economy and the agents' expectations of inflation are supported by the bank's activities. 
B)  only if the central bank continues to inject money into the economy. 
C)  only if the central bank continues to withdraw money from the economy. 
D)  only if the central bank continues to inject money into the economy and all agents expect that inflation will not occur. 
E)  only if the central bank fails to inject money into the economy.

Question 6

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 o

Question 7

(a)Assume that R denotes the domestic interest rate and R* denotes the foreign interest rate. Under a fixed exchange rate what is the relation between R and R*
(b)Assume E denotes the domestic currency price of the dollar for a country which is not the United States. If one wants to analyze only the short-run effects of a policy, what does one assume about the Home and Foreign price levels, P and P*, respectively.
(c)Assume that there is no ongoing balance of payment crisis. What does this assumption really assume?
(d)Assume a fixed exchange rate system. What does this tell you about E?
(e)Under the above assumptions what are the conditions for internal balance?
(f)How would your answer to Part D above change if P* is unstable due to foreign inflation.
(g)Given the definitions above, how would one define the real exchange rate?
(h)Write the condition for internal balance.
(i)Define the variable not defined before in Part G above.
(j)Using the equation for internal balance derived above, given our assumptions analyze the effects of a fiscal expansion.
(k)What would happen if the government of that country, which is not the United States under Bretton Woods, decides to devaluate its currency?
(l)What would happen if the government of that country, which is not the United States under Bretton Woods, decides to use monetary policy rather than fiscal policy?
(m)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?
(n)Assume that the economy is at internal balance. What will happen if G goes up for a given level of E?
(o)Assume that the economy is at internal balance. What will happen if G goes down for a given level of E?

Accepted Answer

(a) R = R*
(b) Constant prices.
(c) That

Question 8

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 9

Advocates of floating rates pointed out that

Accepted Answer

A)  removal of the obligation to peg currency values would restore monetary control to central banks. 
B)  imposing of the obligation to peg currency values would restore monetary control to central banks. 
C)  removing of the obligation to peg currency values would restore fiscal control. 
D)  imposing of the obligation to peg currency values would restore fiscal control. 
E)  imposing of the obligation to peg currency would restore monetary control to the consumer. 
A)  removal of the obligation to peg currency values would restore monetary control to central banks. 
B)  imposing of the obligation to peg currency values would restore monetary control to central banks. 
C)  removing of the obligation to peg currency values would restore fiscal control. 
D)  imposing of the obligation to peg currency values would restore fiscal control. 
E)  imposing of the obligation to peg currency would restore monetary control to the consumer.

Question 10

Once the United States Civil War broke out, the United States moved to a

Accepted Answer

A)  gold standard. 
B)  silver standard. 
C)  bimetallic monetary standard consisting of silver and gold. 
D)  bimetallic monetary standard consisting of copper and gold. 
E)  paper currency, called the "greenback." 
A)  gold standard. 
B)  silver standard. 
C)  bimetallic monetary standard consisting of silver and gold. 
D)  bimetallic monetary standard consisting of copper and gold. 
E)  paper currency, called the "greenback."

Question 11

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 12

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 o

Question 13

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 14

Discuss the impact of the restoration of convertibility in 1958.

Accepted Answer

As foreign exchange trading expanded, fi

Question 15

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 16

It is claimed that L. Frank Baum's classic 1900 children's book, The Wonderful Wizard of Oz, is an allegorical rendition of the U.S. political struggle over gold.

Accepted Answer

This statement is true. In L. Frank Baum

Question 17

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

Accepted Answer

A)  falls, Home's currency appreciates, Foreign output rises. 
B)  rises, Home's currency appreciates, Foreign output rises. 
C)  rises, Home's currency depreciates, Foreign output rises. 
D)  rises, Home's currency appreciates, Foreign output decreases. 
E)  falls, Homes currency depreciates, Foreign output rises. 
A)  falls, Home's currency appreciates, Foreign output rises. 
B)  rises, Home's currency appreciates, Foreign output rises. 
C)  rises, Home's currency depreciates, Foreign output rises. 
D)  rises, Home's currency appreciates, Foreign output decreases. 
E)  falls, Homes currency depreciates, Foreign output rises.

Question 18

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 19

If most of the shocks that buffet the economy come from the output market shocks, then

Accepted Answer

A)  fixed exchange rates are better than flexible exchange rates. 
B)  flexible exchange rates are better than fixed exchange rates. 
C)  which system is chosen is not important. 
D)  fixed exchange rates are better than flexible exchange rates only in the short run. 
E)  flexible exchange rates are better than fixed exchange rates only in the short-run. 
A)  fixed exchange rates are better than flexible exchange rates. 
B)  flexible exchange rates are better than fixed exchange rates. 
C)  which system is chosen is not important. 
D)  fixed exchange rates are better than flexible exchange rates only in the short run. 
E)  flexible exchange rates are better than fixed exchange rates only in the short-run.

Question 20

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

Exam 19: International Monetary Systems: an Historical Overview

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

A country is said to be in balance of payments equilibrium, when the sum of its current and its

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

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

Inflation can occur under conditions of full employment

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

By external balance, most economists mean

Advocates of floating rates pointed out that

Once the United States Civil War broke out, the United States moved to a

The current account surplus is

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

When all changes in the world are due to

Discuss the impact of the restoration of convertibility in 1958.

Countries where investment is relatively

It is claimed that L. Frank Baum's classic 1900 children's book, The Wonderful Wizard of Oz, is an allegorical rendition of the U.S. political struggle over gold.

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

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

If most of the shocks that buffet the economy come from the output market shocks, then

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

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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