Question 1

Which one of the following statements is the most accurate? By the year 1932, the United States

Accepted Answer

A)  and Canada alone held more than 70 percent of the world's monetary gold. 
B)  and Germany alone held more than 70 percent of the world's monetary gold. 
C)  and Britain alone held more than 70 percent of the world's monetary gold. 
D)  Britain, and France alone held more than 70 percent of the world's monetary gold. 
E)  and France alone held more than 70 percent of the world's monetary gold. 
A)  and Canada alone held more than 70 percent of the world's monetary gold. 
B)  and Germany alone held more than 70 percent of the world's monetary gold. 
C)  and Britain alone held more than 70 percent of the world's monetary gold. 
D)  Britain, and France alone held more than 70 percent of the world's monetary gold. 
E)  and France alone held more than 70 percent of the world's monetary gold.

Question 2

A sudden decrease in the U.S. price level

Accepted Answer

A)  makes those with dollar debts worse off. 
B)  makes those with dollar debts better off. 
C)  do not affect those with dollar debts. 
D)  makes those with DM worse off. 
E)  makes creditors worse off. 
A)  makes those with dollar debts worse off. 
B)  makes those with dollar debts better off. 
C)  do not affect those with dollar debts. 
D)  makes those with DM worse off. 
E)  makes creditors worse off.

Question 3

Under the fixed rate regime foreign countries could hold their dollar exchange rates constant by

Accepted Answer

A)  using tight monetary policy. 
B)  using expansionary fiscal policy. 
C)  negotiating with the central bank of the United States. 
D)  setting their domestic interest rate equal to the U.S. interest rate. 
E)  holding their exchange rates constantly pegged to the euro and yen. 
A)  using tight monetary policy. 
B)  using expansionary fiscal policy. 
C)  negotiating with the central bank of the United States. 
D)  setting their domestic interest rate equal to the U.S. interest rate. 
E)  holding their exchange rates constantly pegged to the euro and yen.

Question 4

The Great Depression that started in 1929 was

Accepted Answer

A)  confined only to the United States. 
B)  confined only to the United States and Britain. 
C)  confined only to the United States and Europe. 
D)  a global phenomenon. 
E)  confined only to the Americas. 
A)  confined only to the United States. 
B)  confined only to the United States and Britain. 
C)  confined only to the United States and Europe. 
D)  a global phenomenon. 
E)  confined only to the Americas.

Question 5

Under the gold standard era of 1870-1914,

Accepted Answer

A)  central banks tried to have sharp fluctuations in the balance of payments. 
B)  central banks tried to avoid sharp fluctuations in the current account of the balance of payments. 
C)  central banks tried to avoid sharp fluctuations in the trade account of the balance of payments. 
D)  central banks tried to avoid sharp fluctuations in the capital account of the balance of payments. 
E)  central banks tried to avoid sharp fluctuations in the balance of payments. 
A)  central banks tried to have sharp fluctuations in the balance of payments. 
B)  central banks tried to avoid sharp fluctuations in the current account of the balance of payments. 
C)  central banks tried to avoid sharp fluctuations in the trade account of the balance of payments. 
D)  central banks tried to avoid sharp fluctuations in the capital account of the balance of payments. 
E)  central banks tried to avoid sharp fluctuations in the balance of payments.

Question 6

The DD schedule shows

Accepted Answer

A)  interest rate and output pairs for which aggregate demand equals aggregate output. 
B)  exchange rate and output pairs for which aggregate demand equals aggregate output. 
C)  exchange rate and output pairs for which aggregate supply equals aggregate output. 
D)  interest rate and output pairs for which aggregate supply equals aggregate output. 
E)  exchange rate and output pairs for which aggregate demand is greater than aggregate output. 
A)  interest rate and output pairs for which aggregate demand equals aggregate output. 
B)  exchange rate and output pairs for which aggregate demand equals aggregate output. 
C)  exchange rate and output pairs for which aggregate supply equals aggregate output. 
D)  interest rate and output pairs for which aggregate supply equals aggregate output. 
E)  exchange rate and output pairs for which aggregate demand is greater than aggregate output.

Question 7

Advocates of floating rates pointed out that

Accepted Answer

A)  removal of the obligation to peg currency values would restore monetary control to central banks. 
B)  imposing of the obligation to peg currency values would restore monetary control to central banks. 
C)  removing of the obligation to peg currency values would restore fiscal control. 
D)  imposing of the obligation to peg currency values would restore fiscal control. 
E)  imposing of the obligation to peg currency would restore monetary control to the consumer. 
A)  removal of the obligation to peg currency values would restore monetary control to central banks. 
B)  imposing of the obligation to peg currency values would restore monetary control to central banks. 
C)  removing of the obligation to peg currency values would restore fiscal control. 
D)  imposing of the obligation to peg currency values would restore fiscal control. 
E)  imposing of the obligation to peg currency would restore monetary control to the consumer.

Question 8

The alteration of exchange rates to move the economy to internal and external balance may lead to all except

Accepted Answer

A)  a balance of payments crisis. 
B)  changes in the terms of trade. 
C)  changes in the level of imports or exports. 
D)  changes in interest rates. 
E)  a guaranteed unilateral improvement in economic wealth. 
A)  a balance of payments crisis. 
B)  changes in the terms of trade. 
C)  changes in the level of imports or exports. 
D)  changes in interest rates. 
E)  a guaranteed unilateral improvement in economic wealth.

Question 9

The AA schedule shows

Accepted Answer

A)  Interest rate and output pairs at which the foreign exchange market and the domestic money market are in equilibrium. 
B)  Exchange rate and output pairs at which the foreign exchange market and the domestic money market are in equilibrium. 
C)  Interest rate and output pairs at which only the foreign exchange market is in equilibrium. 
D)  Exchange rate and output pairs at which only the foreign exchange market is in equilibrium. 
E)  Exchange rate and output pairs at which only the domestic money market are in equilibrium. 
A)  Interest rate and output pairs at which the foreign exchange market and the domestic money market are in equilibrium. 
B)  Exchange rate and output pairs at which the foreign exchange market and the domestic money market are in equilibrium. 
C)  Interest rate and output pairs at which only the foreign exchange market is in equilibrium. 
D)  Exchange rate and output pairs at which only the foreign exchange market is in equilibrium. 
E)  Exchange rate and output pairs at which only the domestic money market are in equilibrium.

Question 10

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 11

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 12

"A monetary policy is not a policy tool under fixed exchange rates." Discuss.

Accepted Answer

A) True 
 B)False

Question 13

Use the DD-AA model to compare the domestic economic response under flexible and fixed exchange rate regimes to a temporary rise in export demand from foreign countries.

Accepted Answer

Under floating rate: The DD curve shifts

Question 14

Using an equation, explain why do governments prefer to avoid excessive current account surpluses?

Accepted Answer

This follows from the national

Question 15

Countries where investment is

Accepted Answer

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

Question 16

Under the price-specie-flow mechanism, what happens when, say, Germany's current account surplus is greater than its non-reserve capital account deficits?

Accepted Answer

A)  German loans will finance all foreign net imports. 
B)  Automatic drop in German domestic prices and rise in foreign prices. 
C)  Gold reserves will flow into Germany. 
D)  Gold reserves will flow out of Germany. 
E)  Germany will experience a deficit. 
A)  German loans will finance all foreign net imports. 
B)  Automatic drop in German domestic prices and rise in foreign prices. 
C)  Gold reserves will flow into Germany. 
D)  Gold reserves will flow out of Germany. 
E)  Germany will experience a deficit.

Question 17

Under the Gold standard, a country is said to be in balance of payments equilibrium when the current account balance is

Accepted Answer

A)  financed entirely by international lending without reserve movements. 
B)  financed by international lending and with reserve movements. 
C)  equal to zero. 
D)  financed entirely by international lending and past gold reserves. 
E)  financed entirely by gold reserves. 
A)  financed entirely by international lending without reserve movements. 
B)  financed by international lending and with reserve movements. 
C)  equal to zero. 
D)  financed entirely by international lending and past gold reserves. 
E)  financed entirely by gold reserves.

Question 18

Governments prefer to avoid excessive current account surpluses because

Accepted Answer

A)  the returns to domestic savings are more difficult to tax than those on assets abroad. 
B)  an addition to the home capital stock may increase domestic unemployment and therefore lead to higher national income. 
C)  foreign investment in one firm may have beneficial technological spillover effects on other foreign producers that the investing firm does not capture. 
D)  an addition to the home capital stock may reduce domestic unemployment and therefore lead to higher national income. 
E)  domestic savings increase with more investment abroad. 
A)  the returns to domestic savings are more difficult to tax than those on assets abroad. 
B)  an addition to the home capital stock may increase domestic unemployment and therefore lead to higher national income. 
C)  foreign investment in one firm may have beneficial technological spillover effects on other foreign producers that the investing firm does not capture. 
D)  an addition to the home capital stock may reduce domestic unemployment and therefore lead to higher national income. 
E)  domestic savings increase with more investment abroad.

Question 19

Under Bretton Woods,

Accepted Answer

A)  any foreign country cannot devalue its currency against the dollar in conditions of "fundamental disequilibrium." 
B)  any foreign country could devalue its currency against the dollar in conditions of "fundamental disequilibrium," but the system's rules did not give the United States the option of devaluing against foreign currencies. 
C)  any foreign country could devalue its currency against the dollar in conditions of "fundamental disequilibrium," and the system's rules did give the United States the same option of devaluing against foreign currencies. 
D)  the U.S. could devalue its currency against the foreign currencies in conditions of "fundamental disequilibrium." 
E)  any foreign country can revalue its currency against the dollar in conditions of "fundamental disequilibrium." 
A)  any foreign country cannot devalue its currency against the dollar in conditions of "fundamental disequilibrium." 
B)  any foreign country could devalue its currency against the dollar in conditions of "fundamental disequilibrium," but the system's rules did not give the United States the option of devaluing against foreign currencies. 
C)  any foreign country could devalue its currency against the dollar in conditions of "fundamental disequilibrium," and the system's rules did give the United States the same option of devaluing against foreign currencies. 
D)  the U.S. could devalue its currency against the foreign currencies in conditions of "fundamental disequilibrium." 
E)  any foreign country can revalue its currency against the dollar in conditions of "fundamental disequilibrium."

Question 20

Which of the following is/are INCORRECT? An argument against floating exchange rates is that

Accepted Answer

A)  a fixed rate automatically prevents instability in the domestic money market from affecting the economy if shocks come from home domestic money market. 
B)  a fixed rate might become unpredictable, complicating economic planning. 
C)  a rise in money demand under a fixed exchange rate would have no effect on the exchange rate and output. 
D)  a fixed rate functions within the price-specie-flow mechanism and maintains a balance of payments equilibrium, 
E)  a fixed rate automatically prevents instability in the economy from output market shocks. 
A)  a fixed rate automatically prevents instability in the domestic money market from affecting the economy if shocks come from home domestic money market. 
B)  a fixed rate might become unpredictable, complicating economic planning. 
C)  a rise in money demand under a fixed exchange rate would have no effect on the exchange rate and output. 
D)  a fixed rate functions within the price-specie-flow mechanism and maintains a balance of payments equilibrium, 
E)  a fixed rate automatically prevents instability in the economy from output market shocks.

Exam 19: International Monetary Systems: An Historical Overview

Which one of the following statements is the most accurate? By the year 1932, the United States

A sudden decrease in the U.S. price level

Under the fixed rate regime foreign countries could hold their dollar exchange rates constant by

The Great Depression that started in 1929 was

Under the gold standard era of 1870-1914,

The DD schedule shows

Advocates of floating rates pointed out that

The alteration of exchange rates to move the economy to internal and external balance may lead to all except

The AA schedule shows

The current account surplus is

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

"A monetary policy is not a policy tool under fixed exchange rates." Discuss.

Use the DD-AA model to compare the domestic economic response under flexible and fixed exchange rate regimes to a temporary rise in export demand from foreign countries.

Using an equation, explain why do governments prefer to avoid excessive current account surpluses?

Countries where investment is

Under the price-specie-flow mechanism, what happens when, say, Germany's current account surplus is greater than its non-reserve capital account deficits?

Under the Gold standard, a country is said to be in balance of payments equilibrium when the current account balance is

Governments prefer to avoid excessive current account surpluses because

Under Bretton Woods,

Which of the following is/are INCORRECT? An argument against floating exchange rates is that

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