Question 1

A sudden increase 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 debt better off. 
E)  increases all dollar debts. 
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 debt better off. 
E)  increases all dollar debts.

Question 2

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 3

Under the gold standard,

Accepted Answer

A)  a perpetual surplus is possible. 
B)  a perpetual deficit is possible. 
C)  a perpetual surplus is impossible, but a perpetual deficit is possible. 
D)  a perpetual deficit is impossible, but a perpetual surplus is possible. 
E)  a perpetual surplus is impossible. 
A)  a perpetual surplus is possible. 
B)  a perpetual deficit is possible. 
C)  a perpetual surplus is impossible, but a perpetual deficit is possible. 
D)  a perpetual deficit is impossible, but a perpetual surplus is possible. 
E)  a perpetual surplus is impossible.

Question 4

The effects of a decrease in export demand

Accepted Answer

A)  is a powerful argument in favor of fixed rates. 
B)  is a powerful argument in favor of flexible rates. 
C)  shows the difficulties in determining which exchange rate is better. 
D)  is a powerful argument in favor of fixed rates only in the short run. 
E)  is a powerful argument in favor of fixed rates only in the long run. 
A)  is a powerful argument in favor of fixed rates. 
B)  is a powerful argument in favor of flexible rates. 
C)  shows the difficulties in determining which exchange rate is better. 
D)  is a powerful argument in favor of fixed rates only in the short run. 
E)  is a powerful argument in favor of fixed rates only in the long run.

Question 5

The "rules of the game" under the gold standard can best be described as which of the following:

Accepted Answer

A)  selling domestic assets in a deficit and buying assets in a surplus. 
B)  slowing down the automatic adjustments processes inherent in the gold standard. 
C)  selling domestic assets in order to accumulate gold. 
D)  selling foreign assets in a deficit and buying foreign assets in a surplus. 
E)  selling domestic assets in a surplus. 
A)  selling domestic assets in a deficit and buying assets in a surplus. 
B)  slowing down the automatic adjustments processes inherent in the gold standard. 
C)  selling domestic assets in order to accumulate gold. 
D)  selling foreign assets in a deficit and buying foreign assets in a surplus. 
E)  selling domestic assets in a surplus.

Question 6

How did the international monetary system influenced macroeconomic policy-making and performance during the post-World War II years during which exchange rates were fixed under the Bretton Woods agreement (1946-1973)?

Accepted Answer

In July 1944, representatives of 44 coun

Question 7

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

Accepted Answer

A)  falls, Home's currency appreciates, Foreign output rises. 
B)  rises, Home's currency appreciates, Foreign output rises. 
C)  rises, Home's currency depreciates, Foreign output rises. 
D)  rises, Home's currency appreciates, Foreign output decreases. 
E)  falls, Homes currency depreciates, Foreign output rises. 
A)  falls, Home's currency appreciates, Foreign output rises. 
B)  rises, Home's currency appreciates, Foreign output rises. 
C)  rises, Home's currency depreciates, Foreign output rises. 
D)  rises, Home's currency appreciates, Foreign output decreases. 
E)  falls, Homes currency depreciates, Foreign output rises.

Question 8

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 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

Question 10

The price-specie-flow mechanism

Accepted Answer

A)  is an automatic mechanism for assuring external balance under floating exchange rates. 
B)  is an automatic mechanism for assuring external balance under the gold standard. 
C)  is an automatic mechanism for assuring internal balance under floating exchange rates. 
D)  is an automatic mechanism for assuring internal balance under the gold standard. 
E)  is an automatic mechanism for assuring internal balance under mercantilism. 
A)  is an automatic mechanism for assuring external balance under floating exchange rates. 
B)  is an automatic mechanism for assuring external balance under the gold standard. 
C)  is an automatic mechanism for assuring internal balance under floating exchange rates. 
D)  is an automatic mechanism for assuring internal balance under the gold standard. 
E)  is an automatic mechanism for assuring internal balance under mercantilism.

Question 11

What has been learned since 1973 with regards to the experience with floating exchange rate regime?

Accepted Answer

(1) Monetary policy autonomy: Yes, howev

Question 12

Why do governments prefer to avoid current account deficits that are too large?

Accepted Answer

A current account deficit may pose no pr

Question 13

Countries with large current account surpluses might be viewed by the market as candidates for

Accepted Answer

A)  devaluation. 
B)  revaluation. 
C)  bankruptcy. 
D)  depreciation. 
E)  investment. 
A)  devaluation. 
B)  revaluation. 
C)  bankruptcy. 
D)  depreciation. 
E)  investment.

Question 14

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.

Question 15

Present the case for floating exchange rates.

Accepted Answer

(1) Monetary policy autonomy Governments

Question 16

In order to bring about a real depreciation of the dollar, the U.S. can hope for

Accepted Answer

A)  a rise in the U.S. price level. 
B)  a fall in foreign price levels. 
C)  a rise in the dollar's nominal value in terms of foreign currencies. 
D)  a rise in foreign price levels or a fall in the dollar's nominal value in terms of foreign currencies. 
E)  increased output and full employment. 
A)  a rise in the U.S. price level. 
B)  a fall in foreign price levels. 
C)  a rise in the dollar's nominal value in terms of foreign currencies. 
D)  a rise in foreign price levels or a fall in the dollar's nominal value in terms of foreign currencies. 
E)  increased output and full employment.

Question 17

What explains the nearly universal scope of the Great Depression?

Accepted Answer

The international gold standar

Question 18

The collapse of the Bretton Woods system marked

Accepted Answer

A)  the end of floating exchange rates and a move to fixed exchange rates. 
B)  marked the end of fixed exchange rates and a move to floating exchange rates. 
C)  the beginning of the gold standard. 
D)  a plunge in the price of gold. 
E)  the elimination of paper currencies. 
A)  the end of floating exchange rates and a move to fixed exchange rates. 
B)  marked the end of fixed exchange rates and a move to floating exchange rates. 
C)  the beginning of the gold standard. 
D)  a plunge in the price of gold. 
E)  the elimination of paper currencies.

Question 19

Assume that the government has a target value, X, for the current account surplus.
(a) What is the goal of external balance?
(b) Assume that we are dealing with only the short run, what are the values of P and P∗?
(c) Given fixed P and P, what would happen if E rises?
(d) Given P and P, what would happen if T decreases, i.e., an expansionary fiscal policy?
(e) Given P and P, what would happen if G increases, i.e., an expansionary fiscal policy?
(f) 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?
(g) Assume that the economy is in external balance. What will happen if the government maintains its current account at X, but devaluates the domestic currency?
(h) Assume that the economy is at external balance. What will happen if the government raises E?
(i) Assume that the economy is at external balance. What will happen if the government lowers E?

Accepted Answer

(a) The goal of external balance require

Question 20

Under the gold standard,

Accepted Answer

A)  a shortage of currency leads to low domestic prices and a foreign payments surplus. 
B)  a shortage of currency leads to high domestic prices and a foreign payments surplus. 
C)  a shortage of currency leads to low domestic prices and a foreign payments deficit. 
D)  a shortage of currency leads to low domestic prices but leaves the foreign balance of payments at equilibrium. 
E)  a shortage of currency leads to a perpetual surplus. 
A)  a shortage of currency leads to low domestic prices and a foreign payments surplus. 
B)  a shortage of currency leads to high domestic prices and a foreign payments surplus. 
C)  a shortage of currency leads to low domestic prices and a foreign payments deficit. 
D)  a shortage of currency leads to low domestic prices but leaves the foreign balance of payments at equilibrium. 
E)  a shortage of currency leads to a perpetual surplus.

Exam 19: International Monetary Systems: An Historical Overview

A sudden increase in the U.S. price level

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

Under the gold standard,

The effects of a decrease in export demand

The "rules of the game" under the gold standard can best be described as which of the following:

How did the international monetary system influenced macroeconomic policy-making and performance during the post-World War II years during which exchange rates were fixed under the Bretton Woods agreement (1946-1973)?

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

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

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.

The price-specie-flow mechanism

What has been learned since 1973 with regards to the experience with floating exchange rate regime?

Why do governments prefer to avoid current account deficits that are too large?

Countries with large current account surpluses might be viewed by the market as candidates for

Federal Reserve Chairman Volcker's policy to fight inflation

Present the case for floating exchange rates.

In order to bring about a real depreciation of the dollar, the U.S. can hope for

What explains the nearly universal scope of the Great Depression?

The collapse of the Bretton Woods system marked

Under the gold standard,

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