Question 1

Advocates of flexible exchange rates claim that under flexible exchange rates, the central bank of

Accepted Answer

A)  an overheated economy could cool down activity by increasing the money supply without worrying that undesired reserve inflow would undermine its stabilization effort. 
B)  a cooled economy could cool down activity by contracting the money supply without worrying that undesired reserve inflow would undermine its stabilization effort. 
C)  an overheated economy could cool down activity by contracting the money supply without worrying that undesired reserve inflow would undermine its stabilization effort. 
D)  an overheated economy could cool down activity by contracting the money supply without worrying that undesired reserve outflow would undermine its stabilization effort. 
E)  an overheated economy could cool down activity by decreasing employment and increasing output without worrying that this would undermine its stabilization effort. 
A)  an overheated economy could cool down activity by increasing the money supply without worrying that undesired reserve inflow would undermine its stabilization effort. 
B)  a cooled economy could cool down activity by contracting the money supply without worrying that undesired reserve inflow would undermine its stabilization effort. 
C)  an overheated economy could cool down activity by contracting the money supply without worrying that undesired reserve inflow would undermine its stabilization effort. 
D)  an overheated economy could cool down activity by contracting the money supply without worrying that undesired reserve outflow would undermine its stabilization effort. 
E)  an overheated economy could cool down activity by decreasing employment and increasing output without worrying that this would undermine its stabilization effort.

Question 2

The XX schedule shows how much

Accepted Answer

A)  fiscal expansion is needed to hold the current account surplus at X as the currency is devalued by a given amount. 
B)  monetary expansion is needed to hold the current account surplus at X as the currency is devalued by a given amount. 
C)  fiscal expansion is needed to hold the current account surplus at X as the currency is evaluated by a given amount. 
D)  fiscal and monetary expansions are needed to hold the current account surplus at X as the currency is devalued by a given amount. 
E)  foreign funding is needed to hold the current account surplus at X as the currency is devalued by a given amount. 
A)  fiscal expansion is needed to hold the current account surplus at X as the currency is devalued by a given amount. 
B)  monetary expansion is needed to hold the current account surplus at X as the currency is devalued by a given amount. 
C)  fiscal expansion is needed to hold the current account surplus at X as the currency is evaluated by a given amount. 
D)  fiscal and monetary expansions are needed to hold the current account surplus at X as the currency is devalued by a given amount. 
E)  foreign funding is needed to hold the current account surplus at X as the currency is devalued by a given amount.

Question 3

Which one of the following statements is the MOST accurate?
By the year 1932, the United States

Accepted Answer

A)  and Canada alone held more than 70 percent of the world's monetary gold. 
B)  and Germany alone held more than 70 percent of the world's monetary gold. 
C)  and Britain alone held more than 70 percent of the world's monetary gold. 
D)  Britain, and France alone held more than 70 percent of the world's monetary gold. 
E)  and France alone held more than 70 percent of the world's monetary gold. 
A)  and Canada alone held more than 70 percent of the world's monetary gold. 
B)  and Germany alone held more than 70 percent of the world's monetary gold. 
C)  and Britain alone held more than 70 percent of the world's monetary gold. 
D)  Britain, and France alone held more than 70 percent of the world's monetary gold. 
E)  and France alone held more than 70 percent of the world's monetary gold.

Question 4

Supporters of a floating exchange rate cited all of the following as advantages over the Bretton Woods system EXCEPT

Accepted Answer

A)  each country would be able to choose its own long-run inflation rate. 
B)  parity changes and speculative attacks would no longer be possible. 
C)  countries would be forced to work cooperatively in deciding monetary policy. 
D)  exchange rates would be set symmetrically in foreign markets rather than by government decision. 
E)  governments would not need to export inflation to decrease domestic unemployment. 
A)  each country would be able to choose its own long-run inflation rate. 
B)  parity changes and speculative attacks would no longer be possible. 
C)  countries would be forced to work cooperatively in deciding monetary policy. 
D)  exchange rates would be set symmetrically in foreign markets rather than by government decision. 
E)  governments would not need to export inflation to decrease domestic unemployment.

Question 5

Describe the effects of the Smoot-Hawley tariff imposed by the United States in 1930.

Accepted Answer

It had a damaging effect on employment a

Question 6

Present the case for floating exchange rates.

Accepted Answer

(1) Monetary policy autonomy - Governmen

Question 7

When the exchange rate, E, and the foreign price level, P*, is fixed, domestic inflation depends primarily on

Accepted Answer

A)  amount of aggregate demand. 
B)  home price level set by IMF. 
C)  current account balance. 
D)  government tax policy. 
E)  foreign interest rates. 
A)  amount of aggregate demand. 
B)  home price level set by IMF. 
C)  current account balance. 
D)  government tax policy. 
E)  foreign interest rates.

Question 8

What are the outcomes of the following games, assuming the max-min criteria is used?

Accepted Answer

There are two equilibria in th

Question 9

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 10

Economic theory and experience since 1973 indicate that, under floating exchange rates, a country's fiscal and monetary policies in the short run and the long run can

Accepted Answer

A)  have both domestic and foreign economic impact. 
B)  have domestic or foreign economic impact, but not both. 
C)  have domestic but not foreign economic impact. 
D)  have foreign but not domestic economic impact. 
E)  have neither domestic nor foreign economic impact. 
A)  have both domestic and foreign economic impact. 
B)  have domestic or foreign economic impact, but not both. 
C)  have domestic but not foreign economic impact. 
D)  have foreign but not domestic economic impact. 
E)  have neither domestic nor foreign economic impact.

Question 11

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 12

Under purchasing power parity (PPP), if U.S. monetary growth leads to a long run doubling of the U.S. price level, while Germany's price level remains constant, PPP predicts that the

Accepted Answer

A)  long-run DM price of the dollar will be doubled. 
B)  long-run DM price of the dollar will be halved. 
C)  long-run DM price of the dollar will remain the same. 
D)  short-run DM price of the dollar will be halved. 
E)  short-run DM price of the dollar will be doubled. 
A)  long-run DM price of the dollar will be doubled. 
B)  long-run DM price of the dollar will be halved. 
C)  long-run DM price of the dollar will remain the same. 
D)  short-run DM price of the dollar will be halved. 
E)  short-run DM price of the dollar will be doubled.

Question 13

Which of the following does NOT occur if Home starts a policy of permanent fiscal expansion:

Accepted Answer

A)  Home's exchange rate increases. 
B)  Foreign's interest rate rises. 
C)  Home output rises. 
D)  Foreign output rises. 
E)  Current Account Balance increases. 
A)  Home's exchange rate increases. 
B)  Foreign's interest rate rises. 
C)  Home output rises. 
D)  Foreign output rises. 
E)  Current Account Balance increases.

Question 14

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 15

Which of the following statements is MOST accurate?

Accepted Answer

A)  A revaluation restores internal and external balance immediately, without causing domestic inflation. 
B)  A devaluation restores internal and external balance immediately, without causing domestic inflation. 
C)  A revaluation restores internal and external balance immediately, but also causes domestic inflation. 
D)  A devaluation restores internal and external balance immediately, but also causes domestic inflation. 
E)  A devaluation restores external balance in the long run, without causing immediate domestic inflation. 
A)  A revaluation restores internal and external balance immediately, without causing domestic inflation. 
B)  A devaluation restores internal and external balance immediately, without causing domestic inflation. 
C)  A revaluation restores internal and external balance immediately, but also causes domestic inflation. 
D)  A devaluation restores internal and external balance immediately, but also causes domestic inflation. 
E)  A devaluation restores external balance in the long run, without causing immediate domestic inflation.

Question 16

Some claim that the long and agonizing periods of speculation preceding exchange rate realignments would

Accepted Answer

A)  not occur under a fixed exchange rate regime. 
B)  not occur under floating. 
C)  become more severe under currency board. 
D)  become less severe under floating. 
E)  be prolonged under floating. 
A)  not occur under a fixed exchange rate regime. 
B)  not occur under floating. 
C)  become more severe under currency board. 
D)  become less severe under floating. 
E)  be prolonged under floating.

Question 17

The dollar of the United States became the postwar world's key currency because of all EXCEPT

Accepted Answer

A)  the early convertibility of the U.S. dollar in 1945. 
B)  the special position of the dollar under the Bretton Woods system. 
C)  the strength of the American economy relative to the devastated economies of Europe and Japan. 
D)  central banks naturally found it advantageous to hold their international reserves in the form of interest-bearing dollar assets. 
E)  the ease of transporting U.S. dollars compared with other currencies. 
A)  the early convertibility of the U.S. dollar in 1945. 
B)  the special position of the dollar under the Bretton Woods system. 
C)  the strength of the American economy relative to the devastated economies of Europe and Japan. 
D)  central banks naturally found it advantageous to hold their international reserves in the form of interest-bearing dollar assets. 
E)  the ease of transporting U.S. dollars compared with other currencies.

Question 18

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.

Question 19

Under a flexible exchange rate regime, an increase in real money demand

Accepted Answer

A)  moves the AA curve to the right. 
B)  moves the AA curve to the left. 
C)  leaves the AA curve unchanged. 
D)  moves the DD curve to the right. 
E)  moves the DD curve to the left. 
A)  moves the AA curve to the right. 
B)  moves the AA curve to the left. 
C)  leaves the AA curve unchanged. 
D)  moves the DD curve to the right. 
E)  moves the DD curve to the left.

Question 20

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.

Exam 19: International Monetary Systems: an Historical Overview

Advocates of flexible exchange rates claim that under flexible exchange rates, the central bank of

The XX schedule shows how much

Which one of the following statements is the MOST accurate? By the year 1932, the United States

Supporters of a floating exchange rate cited all of the following as advantages over the Bretton Woods system EXCEPT

Describe the effects of the Smoot-Hawley tariff imposed by the United States in 1930.

Present the case for floating exchange rates.

When the exchange rate, E, and the foreign price level, P*, is fixed, domestic inflation depends primarily on

What are the outcomes of the following games, assuming the max-min criteria is used?

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.

Economic theory and experience since 1973 indicate that, under floating exchange rates, a country's fiscal and monetary policies in the short run and the long run can

A sudden increase in the U.S. price level

Under purchasing power parity (PPP), if U.S. monetary growth leads to a long run doubling of the U.S. price level, while Germany's price level remains constant, PPP predicts that the

Which of the following does NOT occur if Home starts a policy of permanent fiscal expansion:

By internal balance, most economists mean

Which of the following statements is MOST accurate?

Some claim that the long and agonizing periods of speculation preceding exchange rate realignments would

The dollar of the United States became the postwar world's key currency because of all EXCEPT

Advocates of flexible exchange rates claim that under flexible exchange rates

Under a flexible exchange rate regime, an increase in real money demand

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

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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