Question 1

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. C

Question 2

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. A

Question 3

Refer to the payoff matrix below, which ________ a prisoner's dilemma. If both countries go it alone, Home will choose Policy ________ and Foreign will choose Policy ________.

Accepted Answer

A)  is; 1; A 
B)  is; 2; B 
C)  is; 1; B 
D)  is not; 2; B 
E)  is not; 1; A 
A)  is; 1; A 
B)  is; 2; B 
C)  is; 1; B 
D)  is not; 2; B 
E)  is not; 1; A A

Question 4

Which one of the following statements is true?

Accepted Answer

A)  Inflation but not deflation can occur even under conditions of full employment. 
B)  Deflation but not inflation can occur even under conditions of full employment. 
C)  Inflation or deflation can occur even under conditions of full employment. 
D)  Inflation can occur even under conditions of full employment only in the long run. 
E)  Inflation does not coincide with periods of high unemployment levels. 
A)  Inflation but not deflation can occur even under conditions of full employment. 
B)  Deflation but not inflation can occur even under conditions of full employment. 
C)  Inflation or deflation can occur even under conditions of full employment. 
D)  Inflation can occur even under conditions of full employment only in the long run. 
E)  Inflation does not coincide with periods of high unemployment levels.

Question 5

The mechanism behind the inflation insulation provided by a floating exchange rate is:

Accepted Answer

A)  Purchasing Power Parity. 
B)  a fixed AA curve. 
C)  market speculation. 
D)  tight monetary policy. 
E)  symmetry. 
A)  Purchasing Power Parity. 
B)  a fixed AA curve. 
C)  market speculation. 
D)  tight monetary policy. 
E)  symmetry.

Question 6

In the case of a domestic monetary shock, floating exchange rates:

Accepted Answer

A)  make the home economy less vulnerable. 
B)  make the home economy more vulnerable. 
C)  make the foreign economy more vulnerable. 
D)  would not affect the foreign economy. 
E)  would not affect the home economy. 
A)  make the home economy less vulnerable. 
B)  make the home economy more vulnerable. 
C)  make the foreign economy more vulnerable. 
D)  would not affect the foreign economy. 
E)  would not affect the home economy.

Question 7

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

Question 8

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

Accepted Answer

The answer

Question 9

How did the international monetary system influenced macroeconomic policy-making and performance during the gold standard era (1870-1914)?

Accepted Answer

London was the center of the internation

Question 10

Which of the following is not a result of a permanent fall in foreign demand on one country's exports under floating exchange rate?

Accepted Answer

A)  The DD curve shifts to the left due to reduction of aggregate demand. 
B)  The AA curve shifts upwards due to the increased expected long-run exchange rate. 
C)  a reduction in output by a smaller degree compared to temporary fall in demand 
D)  depreciation in home country's currency 
E)  a raised level of unemployment 
A)  The DD curve shifts to the left due to reduction of aggregate demand. 
B)  The AA curve shifts upwards due to the increased expected long-run exchange rate. 
C)  a reduction in output by a smaller degree compared to temporary fall in demand 
D)  depreciation in home country's currency 
E)  a raised level of unemployment

Question 11

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 12

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 13

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 14

"Fixed exchange rates are not even an option for most countries." Discuss.

Accepted Answer

Durable fixed exchange rate arrangements

Question 15

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

Accepted Answer

A)  no country would be forced to import only inflation from abroad. 
B)  no country would be forced to import only deflation from abroad. 
C)  no country would be forced to import inflation and deflation from abroad. 
D)  flexible exchange rates are not able to halt importing inflation from abroad. 
E)  flexible exchange rates are not able to halt importing deflation from abroad. 
A)  no country would be forced to import only inflation from abroad. 
B)  no country would be forced to import only deflation from abroad. 
C)  no country would be forced to import inflation and deflation from abroad. 
D)  flexible exchange rates are not able to halt importing inflation from abroad. 
E)  flexible exchange rates are not able to halt importing deflation from abroad.

Question 16

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.

Question 17

A country is said to be in balance of payments equilibrium, when the sum of its current and its

Accepted Answer

A)  non-reserved capital accounts equals zero. 
B)  reserved capital accounts equals zero. 
C)  non-reserved capital accounts equals to the surplus in the capital account. 
D)  non-reserved capital accounts equals to the deficit in the capital account. 
E)  non-reserved capital accounts is higher than the total capital account balance. 
A)  non-reserved capital accounts equals zero. 
B)  reserved capital accounts equals zero. 
C)  non-reserved capital accounts equals to the surplus in the capital account. 
D)  non-reserved capital accounts equals to the deficit in the capital account. 
E)  non-reserved capital accounts is higher than the total capital account balance.

Question 18

If the demand for Home exports decreased abroad, the Home fall in output would be greatest:

Accepted Answer

A)  if the decrease was temporary and the exchange rate was fixed. 
B)  if the decrease was temporary and the exchange rate was floating. 
C)  if the decrease was permanent and the exchange rate was fixed. 
D)  if the decrease was permanent and the exchange rate was floating. 
E)  if the decrease was permanent and the exchange rate was high. 
A)  if the decrease was temporary and the exchange rate was fixed. 
B)  if the decrease was temporary and the exchange rate was floating. 
C)  if the decrease was permanent and the exchange rate was fixed. 
D)  if the decrease was permanent and the exchange rate was floating. 
E)  if the decrease was permanent and the exchange rate was high.

Question 19

Since 1973 "dirty floats" have been required because:

Accepted Answer

A)  PPP has not held. 
B)  high inflation countries have stronger currencies than countries with low inflation. 
C)  countries are not cooperating as much as original theorists predicted. 
D)  in the short run, monetary and fiscal policy only affects the autonomous home economy. 
E)  countries with a floating exchange rate have laissez-faire economies. 
A)  PPP has not held. 
B)  high inflation countries have stronger currencies than countries with low inflation. 
C)  countries are not cooperating as much as original theorists predicted. 
D)  in the short run, monetary and fiscal policy only affects the autonomous home economy. 
E)  countries with a floating exchange rate have laissez-faire economies.

Question 20

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.

Exam 19: International Monetary Systems: An Historical Overview

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

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

Refer to the payoff matrix below, which ________ a prisoner's dilemma. If both countries go it alone, Home will choose Policy ________ and Foreign will choose Policy ________.

Which one of the following statements is true?

The mechanism behind the inflation insulation provided by a floating exchange rate is:

In the case of a domestic monetary shock, floating exchange rates:

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.

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

How did the international monetary system influenced macroeconomic policy-making and performance during the gold standard era (1870-1914)?

Which of the following is not a result of a permanent fall in foreign demand on one country's exports under floating exchange rate?

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

By internal balance, most economists mean

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

"Fixed exchange rates are not even an option for most countries." Discuss.

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

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

A country is said to be in balance of payments equilibrium, when the sum of its current and its

If the demand for Home exports decreased abroad, the Home fall in output would be greatest:

Since 1973 "dirty floats" have been required because:

Under flexible exchange rate regime, a money-induced

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

Optimum Currency Areas and the European Experience

Financial Globalization: Opportunity and Crisis

Developing Countries: Growth, Crisis, and Reform

Filters

Refer to the payoff matrix below, which a prisoner's dilemma. If both countries go it alone, Home will choose Policy and Foreign will choose Policy .