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.d

Question 2

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 3

The Plaza Accord of 1985 announces that the

Accepted Answer

A) G-5 countries will intervene in the foreign exchange market to bring about a dollar appreciation. 
B) G-7 countries will intervene in the foreign exchange market to bring about a dollar depreciation. 
C) G-5 countries will intervene in the foreign exchange market to bring about a dollar depreciation. 
D) G-7 countries will intervene in the foreign exchange market to bring about a DM depreciation. 
E) G-5 countries will not intervene in the foreign exchange market unless the dollar needs to appreciate. 
A) G-5 countries will intervene in the foreign exchange market to bring about a dollar appreciation. 
B) G-7 countries will intervene in the foreign exchange market to bring about a dollar depreciation. 
C) G-5 countries will intervene in the foreign exchange market to bring about a dollar depreciation. 
D) G-7 countries will intervene in the foreign exchange market to bring about a DM depreciation. 
E) G-5 countries will not intervene in the foreign exchange market unless the dollar needs to appreciate.

Question 4

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

Accepted Answer

A) appreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products. 
B) depreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products. 
C) depreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products. 
D) depreciation caused by increasing the money supply would reduce unemployment by increasing the relative price of domestic products. 
E) depreciation cause by decreasing the money supply would not effect unemployment,but would increase the relative price of domestic products. 
A) appreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products. 
B) depreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products. 
C) depreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products. 
D) depreciation caused by increasing the money supply would reduce unemployment by increasing the relative price of domestic products. 
E) depreciation cause by decreasing the money supply would not effect unemployment,but would increase the relative price of domestic products.

Question 5

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.

Question 6

(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 is 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 is your answer to Part D above would change if P   is unstable due to foreign inflation.
(g)Given the definitions above,how one defines 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 @#IMG-DLM& 
(b)Constant prices.
(c)That E

Question 7

Advocates of flexible exchange rates claim that under flexible exchange rates

Accepted Answer

A) enhanced control over fiscal policy would allow countries to dismantle their distorting barriers to international payments. 
B) reduced control over monetary policy would allow countries to dismantle their distorting barriers to international payments. 
C) enhanced control over monetary policy would allow countries to increase their distorting barriers to international payments. 
D) enhanced control over monetary policy would allow countries to dismantle their distorting barriers to international payments. 
E) enhanced control over monetary policy would destabilize exchange rates. 
A) enhanced control over fiscal policy would allow countries to dismantle their distorting barriers to international payments. 
B) reduced control over monetary policy would allow countries to dismantle their distorting barriers to international payments. 
C) enhanced control over monetary policy would allow countries to increase their distorting barriers to international payments. 
D) enhanced control over monetary policy would allow countries to dismantle their distorting barriers to international payments. 
E) enhanced control over monetary policy would destabilize exchange rates.

Question 8

Under flexible exchange rate regime,a money-induced

Accepted Answer

A) decrease in U.S.prices causes an immediate appreciation of the foreign currencies against the dollar. 
B) increase in U.S.prices causes an immediate appreciation of the foreign currencies against the dollar. 
C) increase in U.S.prices causes an eventual appreciation of the foreign currencies against the dollar. 
D) increase in U.S.prices causes an eventual depreciation of the foreign currencies against the dollar. 
E) decrease in U.S.prices causes no change in foreign exchange rate. 
A) decrease in U.S.prices causes an immediate appreciation of the foreign currencies against the dollar. 
B) increase in U.S.prices causes an immediate appreciation of the foreign currencies against the dollar. 
C) increase in U.S.prices causes an eventual appreciation of the foreign currencies against the dollar. 
D) increase in U.S.prices causes an eventual depreciation of the foreign currencies against the dollar. 
E) decrease in U.S.prices causes no change in foreign exchange rate.

Question 9

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's

Question 10

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 11

Under the gold standard era of 1870-1914

Accepted Answer

A) Tokyo was the center of the international monetary system. 
B) Paris was the center of the international monetary system. 
C) Berlin the center of the international monetary system. 
D) New York was the center of the international monetary system. 
E) London was the center of the international monetary system. 
A) Tokyo was the center of the international monetary system. 
B) Paris was the center of the international monetary system. 
C) Berlin the center of the international monetary system. 
D) New York was the center of the international monetary system. 
E) London was the center of the international monetary system.

Question 12

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

Accepted Answer

A) not occur under 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 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 13

The following figure introduces the relationship between industrial production and wholesale price index changes between the years 1929-1935.What is the purpose of the following figure?

Accepted Answer

The purpose is to show that countries th

Question 14

A convertible currency is a currency that may be freely exchanged for

Accepted Answer

A) domestic assets. 
B) only silver. 
C) only copper. 
D) national currency. 
E) foreign currencies. 
A) domestic assets. 
B) only silver. 
C) only copper. 
D) national currency. 
E) foreign currencies.

Question 15

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 16

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

Accepted Answer

Had a damaging effect on employment abro

Question 17

The focus of policy in the 1990s was

Accepted Answer

A) increasing trade. 
B) increasing employment. 
C) maintaining stable exchange rates. 
D) holding down inflation and increasing domestic output. 
E) levying beggar-thy-neighbor tariffs. 
A) increasing trade. 
B) increasing employment. 
C) maintaining stable exchange rates. 
D) holding down inflation and increasing domestic output. 
E) levying beggar-thy-neighbor tariffs.

Question 18

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 19

The case of New Zealand,described in the text,is concerned with the country's

Accepted Answer

A) prospects for long term growth. 
B) ability to sustain current account deficits. 
C) unproductive industrial sector and its prospects for long run growth. 
D) labor productivity. 
E) exchange rate volatility relative to other currencies. 
A) prospects for long term growth. 
B) ability to sustain current account deficits. 
C) unproductive industrial sector and its prospects for long run growth. 
D) labor productivity. 
E) exchange rate volatility relative to other currencies.

Question 20

Federal Reserve Chairman Volcker's policy to fight inflation

Accepted Answer

A) led to the 1981-1983 recession,but was ultimately successful. 
B) led to the 1981-1983 recession,but did not end high inflation due to beggar-thy-neighbor effects. 
C) was perfectly complemented by Reagan's decrease in fiscal spending. 
D) led to the 1981-1983 recession and foretold the economic downturn in the mid-1990s. 
E) led to an immediate depreciation of the dollar. 
A) led to the 1981-1983 recession,but was ultimately successful. 
B) led to the 1981-1983 recession,but did not end high inflation due to beggar-thy-neighbor effects. 
C) was perfectly complemented by Reagan's decrease in fiscal spending. 
D) led to the 1981-1983 recession and foretold the economic downturn in the mid-1990s. 
E) led to an immediate depreciation of the dollar.

Exam 19: International Monetary Systems: An Historical Overview

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

The current account surplus is

The Plaza Accord of 1985 announces that the

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

Which one of the following statements is TRUE?

Advocates of flexible exchange rates claim that under flexible exchange rates

Under flexible exchange rate regime,a money-induced

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.

Which of the following statements is MOST accurate?

Under the gold standard era of 1870-1914

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

The following figure introduces the relationship between industrial production and wholesale price index changes between the years 1929-1935.What is the purpose of the following figure?

A convertible currency is a currency that may be freely exchanged for

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.

The focus of policy in the 1990s was

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.

The case of New Zealand,described in the text,is concerned with the country's

Federal Reserve Chairman Volcker's policy to fight inflation

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