Question 1

Fiscal expansion

Accepted Answer

A)  stimulates aggregate demand and causes output to decline. 
B)  decreases aggregate demand and causes output to decline. 
C)  stimulates aggregate demand and causes output to rise. 
D)  decreases aggregate demand and causes output to rise. 
E)  decreases government expenditures. 
A)  stimulates aggregate demand and causes output to decline. 
B)  decreases aggregate demand and causes output to decline. 
C)  stimulates aggregate demand and causes output to rise. 
D)  decreases aggregate demand and causes output to rise. 
E)  decreases government expenditures.

Question 2

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

Accepted Answer

A)  the United States would now be able to set world monetary conditions all by itself. 
B)  Germany would no longer be able to set world monetary conditions all by itself. 
C)  the United Kingdom would no longer be able to set world monetary conditions all by itself. 
D)  the United States would no longer be able to set world monetary conditions all by itself. 
E)  Germany would now be able set world monetary conditions all by itself. 
A)  the United States would now be able to set world monetary conditions all by itself. 
B)  Germany would no longer be able to set world monetary conditions all by itself. 
C)  the United Kingdom would no longer be able to set world monetary conditions all by itself. 
D)  the United States would no longer be able to set world monetary conditions all by itself. 
E)  Germany would now be able set world monetary conditions all by itself.

Question 3

A country seeking to maintain internal balance would be most concerned with:

Accepted Answer

A)  attaining low levels of unemployment. 
B)  ensuring that savings is weighted more towards domestic investment than the current account. 
C)  large fluctuations in output. 
D)  an adequate stock of gold reserves. 
E)  stable employment levels. 
A)  attaining low levels of unemployment. 
B)  ensuring that savings is weighted more towards domestic investment than the current account. 
C)  large fluctuations in output. 
D)  an adequate stock of gold reserves. 
E)  stable employment levels.

Question 4

Under a flexible exchange rate regime, an increase in real money demand

Accepted Answer

A)  moves the AA curve to the right. 
B)  moves the AA curve to the left. 
C)  leaves the AA curve unchanged. 
D)  moves the DD curve to the right. 
E)  moves the DD curve to the left. 
A)  moves the AA curve to the right. 
B)  moves the AA curve to the left. 
C)  leaves the AA curve unchanged. 
D)  moves the DD curve to the right. 
E)  moves the DD curve to the left.

Question 5

Explain why under the gold standard a perpetual surplus or a perpetual deficit is impossible.

Accepted Answer

Since specie inflows drive up domestic p

Question 6

"Under floating rates, the economy is more vulnerable to shocks coming from the domestic money market." Discuss.

Accepted Answer

The statement is true. Under floating ra

Question 7

If most of the shocks that buffet the economy come from the output market shocks, then

Accepted Answer

A)  fixed exchange rates are better than flexible exchange rates. 
B)  flexible exchange rates are better than fixed exchange rates. 
C)  which system is chosen is not important. 
D)  fixed exchange rates are better than flexible exchange rates only in the short run. 
E)  flexible exchange rates are better than fixed exchange rates only in the short-run. 
A)  fixed exchange rates are better than flexible exchange rates. 
B)  flexible exchange rates are better than fixed exchange rates. 
C)  which system is chosen is not important. 
D)  fixed exchange rates are better than flexible exchange rates only in the short run. 
E)  flexible exchange rates are better than fixed exchange rates only in the short-run.

Question 8

Due to macroeconomics interdependence between large countries, the effect of a permanent monetary policy expansion by Home is as follows: Home output

Accepted Answer

A)  rises, Home's currency depreciates, and Foreign output may rise or fall. 
B)  falls, Home's currency depreciates, and Foreign output may rise or fall. 
C)  rises, Home's currency appreciates, and Foreign output may rise or fall. 
D)  rises, Home's currency depreciates, and Foreign output rises. 
E)  falls, Home's currency appreciates, and Foreign output may rise or fall. 
A)  rises, Home's currency depreciates, and Foreign output may rise or fall. 
B)  falls, Home's currency depreciates, and Foreign output may rise or fall. 
C)  rises, Home's currency appreciates, and Foreign output may rise or fall. 
D)  rises, Home's currency depreciates, and Foreign output rises. 
E)  falls, Home's currency appreciates, and Foreign output may rise or fall.

Question 9

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 increasing world demand for them. 
B)  appreciation caused by increasing the money supply would reduce unemployment by increasing world demand for them. 
C)  appreciation caused by decreasing the money supply would reduce unemployment by increasing world demand for them. 
D)  appreciation caused by increasing the money supply would increase unemployment by increasing world demand for them. 
E)  appreciation caused by increasing the money supply would increase unemployment by decreasing world demand for them. 
A)  depreciation caused by increasing the money supply would reduce unemployment by increasing world demand for them. 
B)  appreciation caused by increasing the money supply would reduce unemployment by increasing world demand for them. 
C)  appreciation caused by decreasing the money supply would reduce unemployment by increasing world demand for them. 
D)  appreciation caused by increasing the money supply would increase unemployment by increasing world demand for them. 
E)  appreciation caused by increasing the money supply would increase unemployment by decreasing world demand for them.

Question 10

Using the II-XX framework, show using a figure that fiscal policies by themselves cannot bring the economy to both internal and external balances.

Accepted Answer

Starting at point 2, fiscal policy is sh

Question 11

Which of the two features of the IMF Articles of Agreement helped promote flexibility in external adjustment?

Accepted Answer

A)  IMF members helped countries maintain full employment. 
B)  IMF allowed countries to attain internal balance. 
C)  New countries would enter the agreement if they fixed their exchange rate. 
D)  IMF members contributed their currency to form a pool of resources that IMF could lend to countries in need and parities in the exchange rate against the dollar could be adjusted with agreement of IMF. 
E)  IMF members argued against the use of floating exchange rates. 
A)  IMF members helped countries maintain full employment. 
B)  IMF allowed countries to attain internal balance. 
C)  New countries would enter the agreement if they fixed their exchange rate. 
D)  IMF members contributed their currency to form a pool of resources that IMF could lend to countries in need and parities in the exchange rate against the dollar could be adjusted with agreement of IMF. 
E)  IMF members argued against the use of floating exchange rates.

Question 12

The dollar of the United States became the postwar world's key currency because of all except

Accepted Answer

A)  the early convertibility of the U.S. dollar in 1945. 
B)  the special position of the dollar under the Bretton Woods system. 
C)  the strength of the American economy relative to the devastated economies of Europe and Japan. 
D)  central banks naturally found it advantageous to hold their international reserves in the form of interest-bearing dollar assets. 
E)  the ease of transporting U.S. dollars compared with other currencies. 
A)  the early convertibility of the U.S. dollar in 1945. 
B)  the special position of the dollar under the Bretton Woods system. 
C)  the strength of the American economy relative to the devastated economies of Europe and Japan. 
D)  central banks naturally found it advantageous to hold their international reserves in the form of interest-bearing dollar assets. 
E)  the ease of transporting U.S. dollars compared with other currencies.

Question 13

By the end of the 1960s, many countries felt that they were importing inflation from

Accepted Answer

A)  the United States. 
B)  Germany. 
C)  France. 
D)  Japan. 
E)  the United Kingdom. 
A)  the United States. 
B)  Germany. 
C)  France. 
D)  Japan. 
E)  the United Kingdom.

Question 14

-Refer to the above figure. Use the DD-AA model to examine and compare the response of an economy under fixed and floating exchange rate to a temporary fall in foreign demand for its exports.

Accepted Answer

The DD curve shifts to the left. When th

Question 15

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 16

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

Accepted Answer

(1) The early convertibility of the U.S.

Question 17

The current account surplus

Accepted Answer

A)  is a decreasing function of disposable income and an increasing function of the real exchange rate. 
B)  is an increasing function of disposable income and an increasing function of the real exchange rate. 
C)  is an increasing function of disposable income and a decreasing function of the real exchange rate. 
D)  is a decreasing function of disposable income and a decreasing function of the real exchange rate. 
E)  is an increasing function of disposable income and a decreasing function of aggregate demand 
A)  is a decreasing function of disposable income and an increasing function of the real exchange rate. 
B)  is an increasing function of disposable income and an increasing function of the real exchange rate. 
C)  is an increasing function of disposable income and a decreasing function of the real exchange rate. 
D)  is a decreasing function of disposable income and a decreasing function of the real exchange rate. 
E)  is an increasing function of disposable income and a decreasing function of aggregate demand

Question 18

Maintaining a fixed exchange rate over the long run is today:

Accepted Answer

A)  virtually impossible. 
B)  more vulnerable to speculative attacks than in the past. 
C)  preferable. 
D)  possible only in special cases such as maintaining strict capital controls. 
E)  aided by technology which allows instant movement of money between financial markets in different countries. 
A)  virtually impossible. 
B)  more vulnerable to speculative attacks than in the past. 
C)  preferable. 
D)  possible only in special cases such as maintaining strict capital controls. 
E)  aided by technology which allows instant movement of money between financial markets in different countries.

Question 19

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 20

Under fixed exchange rates, domestic asset transactions by the central bank

Accepted Answer

A)  can be used to alter the level of foreign reserves but not to affect the state of employment and output. 
B)  cannot be used to alter the level of foreign reserves but only to affect the state of employment and output. 
C)  can be used to alter the level of foreign reserves and to affect the state of employment and output. 
D)  can be used to alter the domestic money supply and the level of foreign reserves 
E)  can raise output to full-employment level 
A)  can be used to alter the level of foreign reserves but not to affect the state of employment and output. 
B)  cannot be used to alter the level of foreign reserves but only to affect the state of employment and output. 
C)  can be used to alter the level of foreign reserves and to affect the state of employment and output. 
D)  can be used to alter the domestic money supply and the level of foreign reserves 
E)  can raise output to full-employment level

Exam 19: International Monetary Systems: An Historical Overview

Fiscal expansion

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

A country seeking to maintain internal balance would be most concerned with:

Under a flexible exchange rate regime, an increase in real money demand

Explain why under the gold standard a perpetual surplus or a perpetual deficit is impossible.

"Under floating rates, the economy is more vulnerable to shocks coming from the domestic money market." Discuss.

If most of the shocks that buffet the economy come from the output market shocks, then

Due to macroeconomics interdependence between large countries, the effect of a permanent monetary policy expansion by Home is as follows: Home output

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

Using the II-XX framework, show using a figure that fiscal policies by themselves cannot bring the economy to both internal and external balances.

Which of the two features of the IMF Articles of Agreement helped promote flexibility in external adjustment?

The dollar of the United States became the postwar world's key currency because of all except

By the end of the 1960s, many countries felt that they were importing inflation from

-Refer to the above figure. Use the DD-AA model to examine and compare the response of an economy under fixed and floating exchange rate to a temporary fall in foreign demand for its exports.

Which one of the following statements is true?

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

The current account surplus

Maintaining a fixed exchange rate over the long run is today:

The Plaza Accord of 1985 announces that the

Under fixed exchange rates, domestic asset transactions by the central bank

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

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