Question 1

If the U.S. dollar were to cease to be the leading international reserve currency,

Accepted Answer

A) U)S. households and businesses would be unaffected. 
B) U)S. households and businesses would be subject to increased exchange rate risk. 
C) interest rates in the U.S. would be lower. 
D) the U.S. monetary base would contract. 
A) U)S. households and businesses would be unaffected. 
B) U)S. households and businesses would be subject to increased exchange rate risk. 
C) interest rates in the U.S. would be lower. 
D) the U.S. monetary base would contract.

Question 2

Foreign-exchange market interventions will always

Accepted Answer

A) lead to a decline in domestic interest rates relative to foreign interest rates. 
B) lead to a rise in domestic interest rates relative to foreign interest rates. 
C) lead to a decline in the domestic money supply. 
D) alter a central bank's holdings of international reserves. 
A) lead to a decline in domestic interest rates relative to foreign interest rates. 
B) lead to a rise in domestic interest rates relative to foreign interest rates. 
C) lead to a decline in the domestic money supply. 
D) alter a central bank's holdings of international reserves.

Question 3

Make use of a T-account to show the effect of the Fed's purchase of $5 billion worth of foreign government securities on the Fed's balance sheet (note: assume the Fed writes a check to purchase the securities)

Accepted Answer

The Fed's assets increase as i

Question 4

The gold standard probably made the Great Depression more severe in the United States because

Accepted Answer

A) the value of gold declined sharply during those years. 
B) the existence of the gold standard kept prices from falling. 
C) the money supply in the United States increased rapidly as gold flowed into the country. 
D) the Fed attempted to reduce gold outflows by raising the discount rate. 
A) the value of gold declined sharply during those years. 
B) the existence of the gold standard kept prices from falling. 
C) the money supply in the United States increased rapidly as gold flowed into the country. 
D) the Fed attempted to reduce gold outflows by raising the discount rate.

Question 5

The "troika" that helped Greece avoid defaulting on its debt including all of the following EXCEPT:

Accepted Answer

A) IMF 
B) European Central Bank 
C) World Bank 
D) European Commission 
A) IMF 
B) European Central Bank 
C) World Bank 
D) European Commission

Question 6

If the Fed sells $1 billion of short-term securities issued by the Bank of Japan and at the same time purchases $1 billion of short-term securities issued by the U.S. Treasury,

Accepted Answer

A) the monetary base will decline by $1 billion. 
B) the monetary base will rise by $1 billion. 
C) the Fed has conducted an unsterilized foreign-exchange intervention. 
D) the Fed has conducted a sterilized foreign-exchange intervention. 
A) the monetary base will decline by $1 billion. 
B) the monetary base will rise by $1 billion. 
C) the Fed has conducted an unsterilized foreign-exchange intervention. 
D) the Fed has conducted a sterilized foreign-exchange intervention.

Question 7

Suppose that Ruritania has a fixed exchange rate versus the U.S. dollar. If foreign investors become convinced that the Ruritanian currency is overvalued, what actions might they take to profit from this conviction? Would these actions make it easier or harder for Ruritania to maintain the value of its currency versus the dollar? Why?

Accepted Answer

Foreign investors will want to sell Ruri

Question 8

If the Fed sterilizes the purchase of foreign assets,

Accepted Answer

A) its assets and liabilities rise by the same amount. 
B) its assets and liabilities fall by the same amount. 
C) the composition of its assets changes, but its liabilities are unaffected. 
D) the composition of its liabilities changes, but its assets are unaffected. 
A) its assets and liabilities rise by the same amount. 
B) its assets and liabilities fall by the same amount. 
C) the composition of its assets changes, but its liabilities are unaffected. 
D) the composition of its liabilities changes, but its assets are unaffected.

Question 9

International reserves are

Accepted Answer

A) assets denominated in a foreign currency and used in international transactions. 
B) reserves the Fed requires banks to hold against Eurodollar deposits. 
C) reserves the International Monetary Fund requires banks to hold if they wish to participate in the market for foreign exchange. 
D) central bank holdings of gold. 
A) assets denominated in a foreign currency and used in international transactions. 
B) reserves the Fed requires banks to hold against Eurodollar deposits. 
C) reserves the International Monetary Fund requires banks to hold if they wish to participate in the market for foreign exchange. 
D) central bank holdings of gold.

Question 10

The Bretton Woods system lasted from

Accepted Answer

A) 1801 to 1861. 
B) 1863 to 1914. 
C) 1945 to 1971. 
D) 1981 to 1993. 
A) 1801 to 1861. 
B) 1863 to 1914. 
C) 1945 to 1971. 
D) 1981 to 1993.

Question 11

All of the following are advantages of currency pegging EXCEPT

Accepted Answer

A) it reduces exchange rate risk. 
B) it is a check against inflation. 
C) it provides protection for firms that have taken out loans in foreign currencies. 
D) it keeps the exchange rate closer to its equilibrium rate. 
A) it reduces exchange rate risk. 
B) it is a check against inflation. 
C) it provides protection for firms that have taken out loans in foreign currencies. 
D) it keeps the exchange rate closer to its equilibrium rate.

Question 12

A purchase of foreign assets by a central bank has the same impact on the monetary base as:

Accepted Answer

A) an open market purchase of government securities 
B) an open market sale of government securities 
C) an increase in the discount rate 
D) a reduction in the interest on reserves 
A) an open market purchase of government securities 
B) an open market sale of government securities 
C) an increase in the discount rate 
D) a reduction in the interest on reserves

Question 13

Under the gold standard, if the demand for U.S. goods increased, which of the following would happen?

Accepted Answer

A) Gold would flow into the United States. 
B) The U.S. monetary base would decline. 
C) Prices in the United States would fall. 
D) The United States would experience a balance of trade deficit. 
A) Gold would flow into the United States. 
B) The U.S. monetary base would decline. 
C) Prices in the United States would fall. 
D) The United States would experience a balance of trade deficit.

Question 14

What alternative to restrictions on capital inflows do some economists recommend to minimize the possibility of increased lending booms and risk taking by domestic banks?

Accepted Answer

Some economists point out that this prob

Question 15

A nation with an official settlements balance of -$100 billion is likely to experience a:

Accepted Answer

A) balance of payments surplus and accumulate $100 billion in international reserves 
B) balance of payments deficit and accumulate $100 billion in international reserves 
C) balance of payments surplus and a decline of $100 billion in international reserves 
D) balance of payments deficit and a decline of $100 billion in international reserves 
A) balance of payments surplus and accumulate $100 billion in international reserves 
B) balance of payments deficit and accumulate $100 billion in international reserves 
C) balance of payments surplus and a decline of $100 billion in international reserves 
D) balance of payments deficit and a decline of $100 billion in international reserves

Question 16

When a central bank buys foreign assets,

Accepted Answer

A) its holdings of foreign assets rise by the amount of the purchase, but the monetary base is unaffected. 
B) its holdings of foreign assets and the monetary base rise by the amount of the purchase. 
C) its holdings of foreign assets rise by the amount of the purchase, and the monetary base rises by the amount of the purchase times the money multiplier. 
D) the monetary base falls by the amount of the purchase. 
A) its holdings of foreign assets rise by the amount of the purchase, but the monetary base is unaffected. 
B) its holdings of foreign assets and the monetary base rise by the amount of the purchase. 
C) its holdings of foreign assets rise by the amount of the purchase, and the monetary base rises by the amount of the purchase times the money multiplier. 
D) the monetary base falls by the amount of the purchase.

Question 17

In 2012, the European Central Bank bought the debt of which nation?

Accepted Answer

A) the United States 
B) France 
C) Spain 
D) Germany 
A) the United States 
B) France 
C) Spain 
D) Germany

Question 18

Make use of a graph of the foreign exchange market to show how the Central Bank of Mexico can use an unsterilized intervention to increase the value of its currency, the peso, in terms of the dollar.

Accepted Answer

An unsterilized intervention by the cent

Question 19

When a nation is said to be running a balance of payments surplus, this means its

Accepted Answer

A) official settlements balance is positive. 
B) trade balance is positive. 
C) net financial account balance is positive. 
D) current account is positive. 
A) official settlements balance is positive. 
B) trade balance is positive. 
C) net financial account balance is positive. 
D) current account is positive.

Question 20

If the Fed sells foreign assets, the monetary base will

Accepted Answer

A) fall by the amount of the sale, only if the Fed buys domestic bank deposits with the proceeds. 
B) fall by the amount of the sale, only if the Fed buys domestic currency with the proceeds. 
C) fall by the amount of the sale, whether the Fed buys domestic bank deposits or domestic currency with the proceeds. 
D) rise by the amount of the sale. 
A) fall by the amount of the sale, only if the Fed buys domestic bank deposits with the proceeds. 
B) fall by the amount of the sale, only if the Fed buys domestic currency with the proceeds. 
C) fall by the amount of the sale, whether the Fed buys domestic bank deposits or domestic currency with the proceeds. 
D) rise by the amount of the sale.

If the U.S. dollar were to cease to be the leading international reserve currency,

Foreign-exchange market interventions will always

Make use of a T-account to show the effect of the Fed's purchase of $5 billion worth of foreign government securities on the Fed's balance sheet (note: assume the Fed writes a check to purchase the securities)

The gold standard probably made the Great Depression more severe in the United States because

The "troika" that helped Greece avoid defaulting on its debt including all of the following EXCEPT:

If the Fed sells $1 billion of short-term securities issued by the Bank of Japan and at the same time purchases $1 billion of short-term securities issued by the U.S. Treasury,

If the Fed sterilizes the purchase of foreign assets,

International reserves are

The Bretton Woods system lasted from

All of the following are advantages of currency pegging EXCEPT

A purchase of foreign assets by a central bank has the same impact on the monetary base as:

Under the gold standard, if the demand for U.S. goods increased, which of the following would happen?

What alternative to restrictions on capital inflows do some economists recommend to minimize the possibility of increased lending booms and risk taking by domestic banks?

A nation with an official settlements balance of -$100 billion is likely to experience a:

When a central bank buys foreign assets,

In 2012, the European Central Bank bought the debt of which nation?

Make use of a graph of the foreign exchange market to show how the Central Bank of Mexico can use an unsterilized intervention to increase the value of its currency, the peso, in terms of the dollar.

When a nation is said to be running a balance of payments surplus, this means its

If the Fed sells foreign assets, the monetary base will

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters

Exam 16: The International Financial System and Monetary Policy

If the U.S. dollar were to cease to be the leading international reserve currency,

Foreign-exchange market interventions will always

Make use of a T-account to show the effect of the Fed's purchase of $5 billion worth of foreign government securities on the Fed's balance sheet (note: assume the Fed writes a check to purchase the securities)

The gold standard probably made the Great Depression more severe in the United States because

The "troika" that helped Greece avoid defaulting on its debt including all of the following EXCEPT:

If the Fed sells $1 billion of short-term securities issued by the Bank of Japan and at the same time purchases $1 billion of short-term securities issued by the U.S. Treasury,

If the Fed sterilizes the purchase of foreign assets,

International reserves are

The Bretton Woods system lasted from

All of the following are advantages of currency pegging EXCEPT

A purchase of foreign assets by a central bank has the same impact on the monetary base as:

Under the gold standard, if the demand for U.S. goods increased, which of the following would happen?

What alternative to restrictions on capital inflows do some economists recommend to minimize the possibility of increased lending booms and risk taking by domestic banks?

A nation with an official settlements balance of -$100 billion is likely to experience a:

When a central bank buys foreign assets,

In 2012, the European Central Bank bought the debt of which nation?

Make use of a graph of the foreign exchange market to show how the Central Bank of Mexico can use an unsterilized intervention to increase the value of its currency, the peso, in terms of the dollar.

When a nation is said to be running a balance of payments surplus, this means its

If the Fed sells foreign assets, the monetary base will

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters