Question 1

Advocates of floating rate suggested it is favorable for economies for the following reasons except

Accepted Answer

A)  it discourages attack from foreign exchange speculators because of the fact that exchange rate adjustment is immediate. 
B)  it helps stabilize the shock effect on unemployment in case of economic changes such as fall in export demand. 
C)  it automatically matches the domestic inflation with ongoing foreign inflation. 
D)  it gives every country the opportunity to guide its own monetary conditions at home. 
E)  it brings the LR exchange rate to the level predicted by PPP without government policy decisions. 
A)  it discourages attack from foreign exchange speculators because of the fact that exchange rate adjustment is immediate. 
B)  it helps stabilize the shock effect on unemployment in case of economic changes such as fall in export demand. 
C)  it automatically matches the domestic inflation with ongoing foreign inflation. 
D)  it gives every country the opportunity to guide its own monetary conditions at home. 
E)  it brings the LR exchange rate to the level predicted by PPP without government policy decisions.

Question 2

"Even under flexible exchange rate regime, governments could not be indifferent to the behavior of exchange rates and inevitably surrendered some of their policy autonomy in other areas to prevent exchange rate movements they viewed as harmful to their economies." Discuss.

Accepted Answer

A) True 
 B)False

Question 3

Which system of interest rates is theoretically worst for policy coordination among the industrial countries of the world? How has this played out since the 1980s?

Accepted Answer

pro-fixed rate theorists predicted that

Question 4

Advocates of flexible exchange rates claim that under flexible exchange rates, the central bank of

Accepted Answer

A)  an overheated economy could cool down activity by increasing the money supply without worrying that undesired reserve inflow would undermine its stabilization effort. 
B)  a cooled economy could cool down activity by contracting the money supply without worrying that undesired reserve inflow would undermine its stabilization effort. 
C)  an overheated economy could cool down activity by contracting the money supply without worrying that undesired reserve inflow would undermine its stabilization effort. 
D)  an overheated economy could cool down activity by contracting the money supply without worrying that undesired reserve outflow would undermine its stabilization effort. 
E)  an overheated economy could cool down activity by decreasing employment and increasing output without worrying that this would undermine its stabilization effort. 
A)  an overheated economy could cool down activity by increasing the money supply without worrying that undesired reserve inflow would undermine its stabilization effort. 
B)  a cooled economy could cool down activity by contracting the money supply without worrying that undesired reserve inflow would undermine its stabilization effort. 
C)  an overheated economy could cool down activity by contracting the money supply without worrying that undesired reserve inflow would undermine its stabilization effort. 
D)  an overheated economy could cool down activity by contracting the money supply without worrying that undesired reserve outflow would undermine its stabilization effort. 
E)  an overheated economy could cool down activity by decreasing employment and increasing output without worrying that this would undermine its stabilization effort.

Question 5

A sudden increase in the U.S. price level

Accepted Answer

A)  makes creditors in dollars better off. 
B)  makes creditors in dollars worse off. 
C)  do not affect creditors in dollars. 
D)  makes creditors in DM worse off. 
E)  makes lenders worse off. 
A)  makes creditors in dollars better off. 
B)  makes creditors in dollars worse off. 
C)  do not affect creditors in dollars. 
D)  makes creditors in DM worse off. 
E)  makes lenders worse off.

Question 6

Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?

Accepted Answer

A)  freedom of international capital movements 
B)  exchange rate instability 
C)  tariffs and subsidies 
D)  restrictions on the migration of labor 
E)  global inflation 
A)  freedom of international capital movements 
B)  exchange rate instability 
C)  tariffs and subsidies 
D)  restrictions on the migration of labor 
E)  global inflation

Question 7

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

Accepted Answer

A)  Argentina. 
B)  Belgium. 
C)  the United States. 
D)  Canada. 
E)  Japan. 
A)  Argentina. 
B)  Belgium. 
C)  the United States. 
D)  Canada. 
E)  Japan.

Question 8

Under the flexible exchange rate, lowering the price of a foreign currency will

Accepted Answer

A)  allow the expansion of monetary policy without causing inflation. 
B)  decrease the foreign country's output. 
C)  prevent a foreign price increase from causing deflation at home. 
D)  cause a home price increase to be exported to the foreign markets. 
E)  cause a "beggar-thy-neighbor" effect. 
A)  allow the expansion of monetary policy without causing inflation. 
B)  decrease the foreign country's output. 
C)  prevent a foreign price increase from causing deflation at home. 
D)  cause a home price increase to be exported to the foreign markets. 
E)  cause a "beggar-thy-neighbor" effect.

Question 9

Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?

Accepted Answer

A)  exchange rate stability 
B)  restrictions on international capital movements 
C)  tariffs and subsidies 
D)  restrictions on the migration of labor 
E)  global inflation 
A)  exchange rate stability 
B)  restrictions on international capital movements 
C)  tariffs and subsidies 
D)  restrictions on the migration of labor 
E)  global inflation

Question 10

Refute the claim by mercantilists who claimed that without severe restrictions on international trade and payments, a country might find itself impoverished and without an adequate supply of circulating monetary gold as a result of balance of payments deficits.

Accepted Answer

The balance of payments would

Question 11

A two-tier gold market like the one created during the Bretton Woods System refers to

Accepted Answer

A)  a private tier for private gold traders where the price would not be allowed to fluctuate, and an official tier for central banks where the official gold price would be allowed to fluctuate. 
B)  a private tier for private gold traders where the price would not be allowed to fluctuate, and an official tier for central banks where the official gold price would rise on a yearly basis by pre-determined increments. 
C)  a private tier for private gold traders where the price would be allowed to fluctuate, and an official tier for central banks where the official gold price would be set at $35 an ounce. 
D)  a private tier for private gold traders where the price would be set at $35 an ounce, and an official tier for central banks where the official gold price would be allowed to fluctuate. 
E)  a private tier for private gold traders where the price of gold would rise on a yearly basis by pre-determined increments, and an official tier for central banks where the official gold price would be set at $35 an ounce. 
A)  a private tier for private gold traders where the price would not be allowed to fluctuate, and an official tier for central banks where the official gold price would be allowed to fluctuate. 
B)  a private tier for private gold traders where the price would not be allowed to fluctuate, and an official tier for central banks where the official gold price would rise on a yearly basis by pre-determined increments. 
C)  a private tier for private gold traders where the price would be allowed to fluctuate, and an official tier for central banks where the official gold price would be set at $35 an ounce. 
D)  a private tier for private gold traders where the price would be set at $35 an ounce, and an official tier for central banks where the official gold price would be allowed to fluctuate. 
E)  a private tier for private gold traders where the price of gold would rise on a yearly basis by pre-determined increments, and an official tier for central banks where the official gold price would be set at $35 an ounce.

Question 12

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

Accepted Answer

A)  the currency appreciates, and output falls. 
B)  the currency depreciates, and output falls. 
C)  the currency remains the same, and output decreases. 
D)  the currency depreciates, and output remains constant. 
E)  the currency appreciates, and output remains the same. 
A)  the currency appreciates, and output falls. 
B)  the currency depreciates, and output falls. 
C)  the currency remains the same, and output decreases. 
D)  the currency depreciates, and output remains constant. 
E)  the currency appreciates, and output remains the same.

Question 13

Under fixed exchange rates,

Accepted Answer

A)  Monetary policy is not an effective policy. 
B)  Fiscal policy is not an effective policy. 
C)  Monetary policy and fiscal policy are not effective. 
D)  Both monetary and fiscal policies are effective. 
E)  Monetary policy has an unpredictable effect on the domestic money supply. 
A)  Monetary policy is not an effective policy. 
B)  Fiscal policy is not an effective policy. 
C)  Monetary policy and fiscal policy are not effective. 
D)  Both monetary and fiscal policies are effective. 
E)  Monetary policy has an unpredictable effect on the domestic money supply.

Question 14

A current account deficit

Accepted Answer

A)  will not pose a problem, especially if it is accompanied by an expansionary fiscal policy. 
B)  may pose no problem if the borrowed funds are channeled into productive domestic investment projects that pay for themselves with the revenue they generate in the future. 
C)  may still pose a problem, even if the borrowed funds are channeled into productive domestic investment projects. 
D)  There is no relation between current account surplus and between savings and investment. 
E)  will pose a problem because the country is borrowing funds from the rest of the world that it won't be able to pay back later. 
A)  will not pose a problem, especially if it is accompanied by an expansionary fiscal policy. 
B)  may pose no problem if the borrowed funds are channeled into productive domestic investment projects that pay for themselves with the revenue they generate in the future. 
C)  may still pose a problem, even if the borrowed funds are channeled into productive domestic investment projects. 
D)  There is no relation between current account surplus and between savings and investment. 
E)  will pose a problem because the country is borrowing funds from the rest of the world that it won't be able to pay back later.

Question 15

If central banks were no longer obliged to intervene in currency markets to fix exchange rates, governments would be able to use monetary policy to reach

Accepted Answer

A)  internal balance. 
B)  external balance. 
C)  internal and external balance. 
D)  internal but not external balance. 
E)  external but not internal balance. 
A)  internal balance. 
B)  external balance. 
C)  internal and external balance. 
D)  internal but not external balance. 
E)  external but not internal balance.

Question 16

Which of the following does not occur if Home starts a policy of permanent fiscal expansion:

Accepted Answer

A)  Home's exchange rate increases. 
B)  Foreign's interest rate rises. 
C)  Home output rises. 
D)  Foreign output rises. 
E)  Current Account Balance increases. 
A)  Home's exchange rate increases. 
B)  Foreign's interest rate rises. 
C)  Home output rises. 
D)  Foreign output rises. 
E)  Current Account Balance increases.

Question 17

Refer to the graph below. The movement from point 1 to point 2 is stimulated by a disequilibrium in which there is domestic ________ and ________.

Accepted Answer

A)  overemployment; trade surplus 
B)  unemployment; trade surplus 
C)  overemployment; trade deficit 
D)  unemployment; trade deficit 
E)  inflation; unemployment 
A)  overemployment; trade surplus 
B)  unemployment; trade surplus 
C)  overemployment; trade deficit 
D)  unemployment; trade deficit 
E)  inflation; unemployment

Question 18

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 lowering the relative price of domestic products and increasing the world demand for them. 
B)  appreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them. 
C)  appreciation caused by decreasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them. 
D)  appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and increasing world demand for them. 
E)  appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and by decreasing world demand for them. 
A)  depreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing the world demand for them. 
B)  appreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them. 
C)  appreciation caused by decreasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them. 
D)  appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and increasing world demand for them. 
E)  appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and by decreasing world demand for them.

Question 19

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 20

Countries where investment is relatively

Accepted Answer

A)  productive should have current account deficits. 
B)  productive should have current account surpluses. 
C)  unproductive should have current account surpluses. 
D)  productive should balanced current account surpluses. 
E)  productive should have low outputs. 
A)  productive should have current account deficits. 
B)  productive should have current account surpluses. 
C)  unproductive should have current account surpluses. 
D)  productive should balanced current account surpluses. 
E)  productive should have low outputs.

Exam 19: International Monetary Systems: An Historical Overview

Advocates of floating rate suggested it is favorable for economies for the following reasons except

"Even under flexible exchange rate regime, governments could not be indifferent to the behavior of exchange rates and inevitably surrendered some of their policy autonomy in other areas to prevent exchange rate movements they viewed as harmful to their economies." Discuss.

Which system of interest rates is theoretically worst for policy coordination among the industrial countries of the world? How has this played out since the 1980s?

Advocates of flexible exchange rates claim that under flexible exchange rates, the central bank of

A sudden increase in the U.S. price level

Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?

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

Under the flexible exchange rate, lowering the price of a foreign currency will

Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?

Refute the claim by mercantilists who claimed that without severe restrictions on international trade and payments, a country might find itself impoverished and without an adequate supply of circulating monetary gold as a result of balance of payments deficits.

A two-tier gold market like the one created during the Bretton Woods System refers to

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

Under fixed exchange rates,

A current account deficit

If central banks were no longer obliged to intervene in currency markets to fix exchange rates, governments would be able to use monetary policy to reach

Which of the following does not occur if Home starts a policy of permanent fiscal expansion:

Refer to the graph below. The movement from point 1 to point 2 is stimulated by a disequilibrium in which there is domestic ________ and ________.

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

Which of the following statements is most accurate?

Countries where investment is relatively

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 graph below. The movement from point 1 to point 2 is stimulated by a disequilibrium in which there is domestic and .