Question 1

A devaluation of the home currency

Accepted Answer

A)  makes foreign goods and services cheaper relative to those sold at home. 
B)  makes domestic goods and services more expensive relative to those sold abroad. 
C)  decreases demand and output. 
D)  increases demand for domestic goods and services. 
E)  increases output and makes domestic goods and services cheaper relative to those sold abroad. 
A)  makes foreign goods and services cheaper relative to those sold at home. 
B)  makes domestic goods and services more expensive relative to those sold abroad. 
C)  decreases demand and output. 
D)  increases demand for domestic goods and services. 
E)  increases output and makes domestic goods and services cheaper relative to those sold abroad.

Question 2

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 3

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 4

What is the difference between an expenditure-changing policy and an expenditure-switching policy?

Accepted Answer

An expenditure-changing policy alters th

Question 5

How did the international monetary system influence macroeconomic policy-making and performance during the post-World War II years during which exchange rates were fixed under the Bretton Woods agreement (1946-1973)?

Accepted Answer

In July 1944, representatives of 44 coun

Question 6

A person holding dollar deposits during the devaluation of the dollar would

Accepted Answer

A)  enjoy a monetary gain. 
B)  see the foreign currency value of dollar assets increase by the amount of the exchange rate change. 
C)  shift their wealth into domestic investments. 
D)  suffer a monetary loss and see the foreign currency value of dollar assets decrease by the amount of the exchange rate change. 
E)  see no change in their investments. 
A)  enjoy a monetary gain. 
B)  see the foreign currency value of dollar assets increase by the amount of the exchange rate change. 
C)  shift their wealth into domestic investments. 
D)  suffer a monetary loss and see the foreign currency value of dollar assets decrease by the amount of the exchange rate change. 
E)  see no change in their investments.

Question 7

What has been learned since 1973 with regards to the experience with floating exchange rate regime?

Accepted Answer

(1) Monetary policy autonomy: Yes, howev

Question 8

"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 9

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 10

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 11

Advocates of flexible exchange rates claim that under flexible exchange rates, a currency

Accepted Answer

A)  depreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing the world demand for them. 
B)  appreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them. 
C)  appreciation caused by decreasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them. 
D)  appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and increasing world demand for them. 
E)  appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and by decreasing world demand for them. 
A)  depreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing the world demand for them. 
B)  appreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them. 
C)  appreciation caused by decreasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them. 
D)  appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and increasing world demand for them. 
E)  appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and by decreasing world demand for them.

Question 12

The reason that the claim that floating exchange rates result in greater economic autonomy for individual countries may not be entirely accurate is that

Accepted Answer

A)  empirical research finds no supporting data. 
B)  policy makers are influenced by the effect of domestic policies on the exchange rate. 
C)  there is no generally satisfactory method for measuring economic autonomy. 
D)  it is based on the assumption of a gold standard. 
E)  countries that run large trade deficits must increase exports to balance trade. 
A)  empirical research finds no supporting data. 
B)  policy makers are influenced by the effect of domestic policies on the exchange rate. 
C)  there is no generally satisfactory method for measuring economic autonomy. 
D)  it is based on the assumption of a gold standard. 
E)  countries that run large trade deficits must increase exports to balance trade.

Question 13

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 14

A current account surplus

Accepted Answer

A)  poses a problem if domestic savings are being invested more profitably abroad than they would be at home. 
B)  may pose no problem if domestic savings are being invested more profitably abroad than they would be at home. 
C)  may pose no problem if domestic savings are being invested less profitably abroad than they would be at home. 
D)  There is no relation between current account surplus and between savings and investment. 
E)  poses a problem if domestic savings are being invested less profitably abroad than they would be at home. 
A)  poses a problem if domestic savings are being invested more profitably abroad than they would be at home. 
B)  may pose no problem if domestic savings are being invested more profitably abroad than they would be at home. 
C)  may pose no problem if domestic savings are being invested less profitably abroad than they would be at home. 
D)  There is no relation between current account surplus and between savings and investment. 
E)  poses a problem if domestic savings are being invested less profitably abroad than they would be at home.

Question 15

Under the flexible exchange rate, lowering the price of a foreign currency will

Accepted Answer

A)  allow the expansion of monetary policy without causing inflation. 
B)  decrease the foreign country's output. 
C)  prevent a foreign price increase from causing deflation at home. 
D)  cause a home price increase to be exported to the foreign markets. 
E)  cause a "beggar-thy-neighbor" effect. 
A)  allow the expansion of monetary policy without causing inflation. 
B)  decrease the foreign country's output. 
C)  prevent a foreign price increase from causing deflation at home. 
D)  cause a home price increase to be exported to the foreign markets. 
E)  cause a "beggar-thy-neighbor" effect.

Question 16

Use a figure below to describe the four zones of economic discomfort.

Accepted Answer

The answer

Question 17

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

Accepted Answer

A)  the currency appreciates, and output falls. 
B)  the currency depreciates, and output falls. 
C)  the currency depreciates, and output increases. 
D)  the currency depreciates, and output remains constant. 
E)  the currency appreciates, and output increases. 
A)  the currency appreciates, and output falls. 
B)  the currency depreciates, and output falls. 
C)  the currency depreciates, and output increases. 
D)  the currency depreciates, and output remains constant. 
E)  the currency appreciates, and output increases.

Question 18

Refer to the graph below. The movement from point 1 to point 2 is stimulated by a disequilibrium in which there is domestic ________ and ________.

Accepted Answer

A)  overemployment; trade surplus 
B)  unemployment; trade surplus 
C)  overemployment; trade deficit 
D)  unemployment; trade deficit 
E)  inflation; unemployment 
A)  overemployment; trade surplus 
B)  unemployment; trade surplus 
C)  overemployment; trade deficit 
D)  unemployment; trade deficit 
E)  inflation; unemployment

Question 19

A sudden decrease 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 better off. 
E)  makes those with dollar debts better 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 better off. 
E)  makes those with dollar debts better off.

Question 20

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.

Exam 19: International Monetary Systems: an Historical Overview

A devaluation of the home currency

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 effects of a decrease in export demand

What is the difference between an expenditure-changing policy and an expenditure-switching policy?

How did the international monetary system influence macroeconomic policy-making and performance during the post-World War II years during which exchange rates were fixed under the Bretton Woods agreement (1946-1973)?

A person holding dollar deposits during the devaluation of the dollar would

What has been learned since 1973 with regards to the experience with floating exchange rate regime?

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

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?

Advocates of flexible exchange rates claim that under flexible exchange rates, a currency

The reason that the claim that floating exchange rates result in greater economic autonomy for individual countries may not be entirely accurate is that

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

A current account surplus

Under the flexible exchange rate, lowering the price of a foreign currency will

Use a figure below to describe the four zones of economic discomfort.

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

Refer to the graph below. The movement from point 1 to point 2 is stimulated by a disequilibrium in which there is domestic ________ and ________.

A sudden decrease in the U.S. price level

Which one of the following statements is TRUE?

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 graph below. The movement from point 1 to point 2 is stimulated by a disequilibrium in which there is domestic and .