Question 1

Implementing short-term capital controls during the Asian crisis caused Malaysia to recover more slowly than other countries.

Accepted Answer

A) True 
 B)False  False

Question 2

A fixed exchange rate system crisis may be accompanied or followed by

Accepted Answer

A) unexpected gains of international reserves. 
B) revaluation of a currency. 
C) devaluation of a currency. 
D) deflationary pressures within the country. 
A) unexpected gains of international reserves. 
B) revaluation of a currency. 
C) devaluation of a currency. 
D) deflationary pressures within the country. C

Question 3

Which of the following is NOT likely to occur when a bank fails?

Accepted Answer

A) Everyone that deposits money in the bank loses all or a portion of their money, unless the country has a functioning deposit insurance system. 
B) The loss of savings (or the feared loss of savings)causes households to cut back on consumption, which spreads the recessionary effect wider through the country. 
C) Unaffected banks may stop making loans as they take a cautious approach, slowing or stopping new investment. 
D) Other banks make too many loans to make up for the loans not made by the failed bank, kicking off a cycle of stimulation and inflation. 
A) Everyone that deposits money in the bank loses all or a portion of their money, unless the country has a functioning deposit insurance system. 
B) The loss of savings (or the feared loss of savings)causes households to cut back on consumption, which spreads the recessionary effect wider through the country. 
C) Unaffected banks may stop making loans as they take a cautious approach, slowing or stopping new investment. 
D) Other banks make too many loans to make up for the loans not made by the failed bank, kicking off a cycle of stimulation and inflation. D

Question 4

Crawling pegs

Accepted Answer

A) are anti-inflationary because they require monetary discipline. 
B) are designed to stabilize real exchange rates when domestic inflation is less than inflation in other nations. 
C) reduce a nation's vulnerability to financial crises. 
D) lead to undervaluation of the domestic currency. 
A) are anti-inflationary because they require monetary discipline. 
B) are designed to stabilize real exchange rates when domestic inflation is less than inflation in other nations. 
C) reduce a nation's vulnerability to financial crises. 
D) lead to undervaluation of the domestic currency.

Question 5

One criticism of IMF conditionality is that it is not sufficiently contractionary.

Accepted Answer

A) True 
 B)False

Question 6

The international institution that serves as a lender of last resort is called the

Accepted Answer

A) IBRD. 
B) WTO. 
C) IMF. 
D) World Bank. 
A) IBRD. 
B) WTO. 
C) IMF. 
D) World Bank.

Question 7

All of the following are possible outcomes of a banking crisis except

Accepted Answer

A) depositors, but not banks, may lose all or a portion of their assets. 
B) a recession due to decreases in consumption by households. 
C) decreases in investment. 
D) a contagion effect of the crisis from vulnerable banks to financial institutions on sound basis. 
A) depositors, but not banks, may lose all or a portion of their assets. 
B) a recession due to decreases in consumption by households. 
C) decreases in investment. 
D) a contagion effect of the crisis from vulnerable banks to financial institutions on sound basis.

Question 8

Which of the following is NOT a true statement about capital controls?

Accepted Answer

A) Countries are more able to prevent capital inflows than they were in the 1970s. 
B) Capital controls may reduce world welfare by preventing capital from moving to its most valuable use. 
C) It is unclear whether it is best to limit capital inflows, capital outflows, or both. 
D) Restricting the movement of capital cannot stop a crisis once it has begun. 
A) Countries are more able to prevent capital inflows than they were in the 1970s. 
B) Capital controls may reduce world welfare by preventing capital from moving to its most valuable use. 
C) It is unclear whether it is best to limit capital inflows, capital outflows, or both. 
D) Restricting the movement of capital cannot stop a crisis once it has begun.

Question 9

IMF quotas

Accepted Answer

A) depend on the size of an economy and its strength. 
B) strictly limit the amount that a country can borrow. 
C) should be increased. 
D) are equal to the amount that a country can borrow from the IMF. 
A) depend on the size of an economy and its strength. 
B) strictly limit the amount that a country can borrow. 
C) should be increased. 
D) are equal to the amount that a country can borrow from the IMF.

Question 10

If governments promise to bail out the financial system in the event of a crisis,this creates a moral hazard problem.Describe this problem.

Accepted Answer

If the costs of failure are removed,the

Question 11

A flexible exchange rate system guarantees a country will not experience an exchange rate crisis.

Accepted Answer

A) True 
 B)False

Question 12

Sovereign default refers to

Accepted Answer

A) default due to excessive money supply growth. 
B) default on private debt instruments. 
C) default on government debt instruments. 
D) bankruptcy of firms, resulting in equity losses. 
A) default due to excessive money supply growth. 
B) default on private debt instruments. 
C) default on government debt instruments. 
D) bankruptcy of firms, resulting in equity losses.

Question 13

A debt crisis may lead to a banking crisis.

Accepted Answer

A) True 
 B)False

Question 14

What are the benefits of capital mobility?

Accepted Answer

The benefits include that inve

Question 15

Explain the pros and cons of a crawling peg.

Accepted Answer

A crawling peg involves fixing the excha

Question 16

If a country has a collapsing currency due to large budget deficits financed by monetary expansion,the cure is to

Accepted Answer

A) default on sovereign debt and restructure the economy. 
B) peg the currency to something different. 
C) cut the deficit and raise interest rates. 
D) increase the rate of inflation to reduce the real value of government debt. 
A) default on sovereign debt and restructure the economy. 
B) peg the currency to something different. 
C) cut the deficit and raise interest rates. 
D) increase the rate of inflation to reduce the real value of government debt.

Question 17

Carefully explain two reasons why domestic crises can become international crises.

Accepted Answer

Some crises are contagious.Direct linkag

Question 18

All of the following statements are true about the real exchange rate,   =     ,except

Accepted Answer

A) a greater change in P (domestic price)compared to a change in P* (foreign price)necessitates a rise in the nominal rate, Rn, to keep the real rate unchanged. 
B) a pegged exchange rate system requires tight control of the money supply. 
C) there is a one-to-one correspondence between the real and nominal exchange rates. 
D) an expansionary monetary policy raises the real exchange rate. 
A) a greater change in P (domestic price)compared to a change in P* (foreign price)necessitates a rise in the nominal rate, Rn, to keep the real rate unchanged. 
B) a pegged exchange rate system requires tight control of the money supply. 
C) there is a one-to-one correspondence between the real and nominal exchange rates. 
D) an expansionary monetary policy raises the real exchange rate.

Question 19

Many developing countries make the government budget one of the primary tools of long-run industrial development,with the government owning and operating industries such as steel mills,airlines,and phone companies.

Accepted Answer

A) True 
 B)False

Question 20

An issue that proposals for international reform agree on is that

Accepted Answer

A) the IMF should intervene more in financial crises. 
B) there must be a lender of last resort. 
C) IMF quotas are currently set at an appropriate level. 
D) the Basel capital requirements for banks should be increased. 
A) the IMF should intervene more in financial crises. 
B) there must be a lender of last resort. 
C) IMF quotas are currently set at an appropriate level. 
D) the Basel capital requirements for banks should be increased.

Implementing short-term capital controls during the Asian crisis caused Malaysia to recover more slowly than other countries.

A fixed exchange rate system crisis may be accompanied or followed by

Which of the following is NOT likely to occur when a bank fails?

Crawling pegs

One criticism of IMF conditionality is that it is not sufficiently contractionary.

The international institution that serves as a lender of last resort is called the

All of the following are possible outcomes of a banking crisis except

Which of the following is NOT a true statement about capital controls?

IMF quotas

If governments promise to bail out the financial system in the event of a crisis,this creates a moral hazard problem.Describe this problem.

A flexible exchange rate system guarantees a country will not experience an exchange rate crisis.

Sovereign default refers to

A debt crisis may lead to a banking crisis.

What are the benefits of capital mobility?

Explain the pros and cons of a crawling peg.

If a country has a collapsing currency due to large budget deficits financed by monetary expansion,the cure is to

Carefully explain two reasons why domestic crises can become international crises.

All of the following statements are true about the real exchange rate, = ,except

Many developing countries make the government budget one of the primary tools of long-run industrial development,with the government owning and operating industries such as steel mills,airlines,and phone companies.

An issue that proposals for international reform agree on is that

The United States in a Global Economy

International Economic Institutions Since World War II

Comparative Advantage and the Gains From Trade

Comparative Advantage and Factor Endowments

Beyond Comparative Advantage

The Theory of Tariffs and Quotas

Commercial Policy

International Trade and Labor and Environmental Standards

Trade and the Balance of Payments

Exchange Rates and Exchange Rate Systems

An Introduction to Open Economy Macroeconomics

The United States in the World Economy

The European Union: Many Markets Into One

Trade and Policy Reform in Latin America

Export-Oriented Growth in East Asia

China and India in the World Economy

Filters

Exam 12: International Financial Crises

Implementing short-term capital controls during the Asian crisis caused Malaysia to recover more slowly than other countries.

A fixed exchange rate system crisis may be accompanied or followed by

Which of the following is NOT likely to occur when a bank fails?

Crawling pegs

One criticism of IMF conditionality is that it is not sufficiently contractionary.

The international institution that serves as a lender of last resort is called the

All of the following are possible outcomes of a banking crisis except

Which of the following is NOT a true statement about capital controls?

IMF quotas

If governments promise to bail out the financial system in the event of a crisis,this creates a moral hazard problem.Describe this problem.

A flexible exchange rate system guarantees a country will not experience an exchange rate crisis.

Sovereign default refers to

A debt crisis may lead to a banking crisis.

What are the benefits of capital mobility?

Explain the pros and cons of a crawling peg.

If a country has a collapsing currency due to large budget deficits financed by monetary expansion,the cure is to

Carefully explain two reasons why domestic crises can become international crises.

All of the following statements are true about the real exchange rate, = ,except

Many developing countries make the government budget one of the primary tools of long-run industrial development,with the government owning and operating industries such as steel mills,airlines,and phone companies.

An issue that proposals for international reform agree on is that

The United States in a Global Economy

International Economic Institutions Since World War II

Comparative Advantage and the Gains From Trade

Comparative Advantage and Factor Endowments

Beyond Comparative Advantage

The Theory of Tariffs and Quotas

Commercial Policy

International Trade and Labor and Environmental Standards

Trade and the Balance of Payments

Exchange Rates and Exchange Rate Systems

An Introduction to Open Economy Macroeconomics

The United States in the World Economy

The European Union: Many Markets Into One

Trade and Policy Reform in Latin America

Export-Oriented Growth in East Asia

China and India in the World Economy

Filters