Question 1

The current account balance plus the financial account balance

Accepted Answer

A)  equals the trade balance. 
B)  equals the net outflow of currency from the domestic economy. 
C)  will be negative during economic expansions and positive during economic contractions. 
D)  equals zero. 
A)  equals the trade balance. 
B)  equals the net outflow of currency from the domestic economy. 
C)  will be negative during economic expansions and positive during economic contractions. 
D)  equals zero.

Question 2

At the time monetary union in Europe began in 1999,which of the following countries declined to participate?

Accepted Answer

A)  France 
B)  United Kingdom 
C)  Italy 
D)  Germany 
A)  France 
B)  United Kingdom 
C)  Italy 
D)  Germany

Question 3

What accounted for much of policymakers' concern over U.S.current account deficits in the 1980s,1990s,and 2000s?

Accepted Answer

A)  The current account deficits were thought to be largely responsible for the federal budget deficit. 
B)  Current account deficits lower U.S. interest rates, thereby leading to reduced domestic saving. 
C)  Current account deficits require the United States to borrow funds from foreign savers. 
D)  The United States had signed international agreements in which it had pledged not to run a current account deficit for more than three years in a row. 
A)  The current account deficits were thought to be largely responsible for the federal budget deficit. 
B)  Current account deficits lower U.S. interest rates, thereby leading to reduced domestic saving. 
C)  Current account deficits require the United States to borrow funds from foreign savers. 
D)  The United States had signed international agreements in which it had pledged not to run a current account deficit for more than three years in a row.

Question 4

Foreign-exchange market interventions will always

Accepted Answer

A)  lead to a decline in domestic interest rates relative to foreign interest rates. 
B)  lead to a rise in domestic interest rates relative to foreign interest rates. 
C)  lead to a decline in the domestic money supply. 
D)  alter a central bank's holdings of international reserves. 
A)  lead to a decline in domestic interest rates relative to foreign interest rates. 
B)  lead to a rise in domestic interest rates relative to foreign interest rates. 
C)  lead to a decline in the domestic money supply. 
D)  alter a central bank's holdings of international reserves.

Question 5

When the Fed allows the monetary base to respond to the purchase or sale of domestic currency in the foreign exchange market,the process is called

Accepted Answer

A)  open market operations. 
B)  hedging. 
C)  sterilized intervention. 
D)  unsterilized intervention. 
A)  open market operations. 
B)  hedging. 
C)  sterilized intervention. 
D)  unsterilized intervention.

Question 6

The speculative attack on the German mark in 1971 resulted in

Accepted Answer

A)  a large increase in the German monetary base. 
B)  a decline in the value of the mark relative to the dollar. 
C)  a decision to end the floating of the mark against the dollar. 
D)  a large decrease in the German monetary base. 
A)  a large increase in the German monetary base. 
B)  a decline in the value of the mark relative to the dollar. 
C)  a decision to end the floating of the mark against the dollar. 
D)  a large decrease in the German monetary base.

Question 7

How did maintaining the gold standard deepen the severity of the Great Depression?

Accepted Answer

A key reason is that to remain on the go

Question 8

In what sense does the IMF act as a lender of last resort? How might the IMF's actions during the Mexican crisis of the mid-1990s have contributed to the Asian currency crisis a few years later?

Accepted Answer

The IMF acts as an international lender

Question 9

International financial transactions are most likely to affect the U.S.monetary base when

Accepted Answer

A)  the United States is in recession. 
B)  the United States is experiencing a severe inflation. 
C)  the Fed tries to influence the foreign-exchange value of the dollar. 
D)  interest rates in the United States are highly variable. 
A)  the United States is in recession. 
B)  the United States is experiencing a severe inflation. 
C)  the Fed tries to influence the foreign-exchange value of the dollar. 
D)  interest rates in the United States are highly variable.

Question 10

Why has the IMF come in for widespread criticism for its handling of the Asian financial crisis?

Accepted Answer

A)  It refused to make loans to any of the countries whose currencies were under speculative attack. 
B)  Its policies did not sufficiently punish speculators with losses, giving rise to moral hazard. 
C)  Its policies led to unsustainably low interest rates in a number of Asian countries. 
D)  Its policies failed to lead to sufficient hardship for citizens in a number of Asian countries, giving rise to moral hazard. 
A)  It refused to make loans to any of the countries whose currencies were under speculative attack. 
B)  Its policies did not sufficiently punish speculators with losses, giving rise to moral hazard. 
C)  Its policies led to unsustainably low interest rates in a number of Asian countries. 
D)  Its policies failed to lead to sufficient hardship for citizens in a number of Asian countries, giving rise to moral hazard.

Question 11

Which of the following was NOT considered to have been a drawback of the pre-1914 gold standard?

Accepted Answer

A)  It sometimes led to inflation, which several times in the late nineteenth century caused recessions in the United States. 
B)  Countries had little control over their domestic monetary policies. 
C)  Countries with trade deficits experienced deflation. 
D)  Changes in the world money supply were strongly influenced by gold discoveries. 
A)  It sometimes led to inflation, which several times in the late nineteenth century caused recessions in the United States. 
B)  Countries had little control over their domestic monetary policies. 
C)  Countries with trade deficits experienced deflation. 
D)  Changes in the world money supply were strongly influenced by gold discoveries.

Question 12

The exchange rate system followed by the United States is known as

Accepted Answer

A)  the gold standard. 
B)  a fixed exchange rate system. 
C)  a flexible exchange rate system. 
D)  a barter system. 
A)  the gold standard. 
B)  a fixed exchange rate system. 
C)  a flexible exchange rate system. 
D)  a barter system.

Question 13

Suppose that Ruritania has a fixed exchange rate versus the U.S.dollar.If foreign investors become convinced that the Ruritanian currency is overvalued,what actions might they take to profit from this conviction? Would these actions make it easier or harder for Ruritania to maintain the value of its currency versus the dollar? Why?

Accepted Answer

Foreign investors will want to sell Ruri

Question 14

The Bretton Woods system was expected to be more stable than the gold standard because

Accepted Answer

A)  the world supply of gold had increased greatly by the time the Bretton Woods system was established. 
B)  large trade deficits and surpluses would be unlikely to occur under the Bretton Woods system. 
C)  fewer countries were involved in the Bretton Woods system than had been involved in the gold standard. 
D)  the IMF was set up to be a lender of last resort. 
A)  the world supply of gold had increased greatly by the time the Bretton Woods system was established. 
B)  large trade deficits and surpluses would be unlikely to occur under the Bretton Woods system. 
C)  fewer countries were involved in the Bretton Woods system than had been involved in the gold standard. 
D)  the IMF was set up to be a lender of last resort.

Question 15

The promise that was to hold the Bretton Woods system together was the agreement that

Accepted Answer

A)  no industrial country would allow high rates of inflation. 
B)  foreign central banks would be able to convert U.S. dollars into gold at a fixed price. 
C)  no country would raise tariffs on the products of other countries. 
D)  all countries would be willing to redeem their paper currencies for gold. 
A)  no industrial country would allow high rates of inflation. 
B)  foreign central banks would be able to convert U.S. dollars into gold at a fixed price. 
C)  no country would raise tariffs on the products of other countries. 
D)  all countries would be willing to redeem their paper currencies for gold.

Question 16

If a central bank wishes to lower the foreign-exchange value of its currency,it will

Accepted Answer

A)  buy domestic currency and sell foreign assets. 
B)  sell domestic currency and buy foreign assets. 
C)  attempt to raise domestic interest rates. 
D)  attempt to lower the domestic price level relative to foreign price levels. 
A)  buy domestic currency and sell foreign assets. 
B)  sell domestic currency and buy foreign assets. 
C)  attempt to raise domestic interest rates. 
D)  attempt to lower the domestic price level relative to foreign price levels.

Question 17

All of the following accurately describes China's currency peg EXCEPT

Accepted Answer

A)  pegging against the dollar ensured that Chinese exporters faced stable prices on exports to the U.S. 
B)  some U.S. firms complained that the peg gave Chinese firms an unfair advantage over U.S. firms. 
C)  the Chinese currency was allowed to depreciate moderately in the years preceding the financial crisis. 
D)  many economists argued that the Chinese currency was undervalued. 
A)  pegging against the dollar ensured that Chinese exporters faced stable prices on exports to the U.S. 
B)  some U.S. firms complained that the peg gave Chinese firms an unfair advantage over U.S. firms. 
C)  the Chinese currency was allowed to depreciate moderately in the years preceding the financial crisis. 
D)  many economists argued that the Chinese currency was undervalued.

Question 18

The trade balance is

Accepted Answer

A)  by definition, identical to the current account balance. 
B)  is a major portion, but not the only component, of the current account balance. 
C)  almost invariably larger than the financial account balance. 
D)  the largest component of the financial account. 
A)  by definition, identical to the current account balance. 
B)  is a major portion, but not the only component, of the current account balance. 
C)  almost invariably larger than the financial account balance. 
D)  the largest component of the financial account.

Question 19

Make use of a graph of the foreign exchange market to show how the Central Bank of Mexico can use an unsterilized intervention to increase the value of its currency,the peso,in terms of the dollar.

Accepted Answer

An unsterilized intervention by the cent

Question 20

All of the following are advantages of currency pegging EXCEPT

Accepted Answer

A)  it reduces exchange rate risk. 
B)  it is a check against inflation. 
C)  it provides protection for firms that have taken out loans in foreign currencies. 
D)  it keeps the exchange rate closer to its equilibrium rate. 
A)  it reduces exchange rate risk. 
B)  it is a check against inflation. 
C)  it provides protection for firms that have taken out loans in foreign currencies. 
D)  it keeps the exchange rate closer to its equilibrium rate.

The current account balance plus the financial account balance

At the time monetary union in Europe began in 1999,which of the following countries declined to participate?

What accounted for much of policymakers' concern over U.S.current account deficits in the 1980s,1990s,and 2000s?

Foreign-exchange market interventions will always

When the Fed allows the monetary base to respond to the purchase or sale of domestic currency in the foreign exchange market,the process is called

The speculative attack on the German mark in 1971 resulted in

How did maintaining the gold standard deepen the severity of the Great Depression?

In what sense does the IMF act as a lender of last resort? How might the IMF's actions during the Mexican crisis of the mid-1990s have contributed to the Asian currency crisis a few years later?

International financial transactions are most likely to affect the U.S.monetary base when

Why has the IMF come in for widespread criticism for its handling of the Asian financial crisis?

Which of the following was NOT considered to have been a drawback of the pre-1914 gold standard?

The exchange rate system followed by the United States is known as

The Bretton Woods system was expected to be more stable than the gold standard because

The promise that was to hold the Bretton Woods system together was the agreement that

If a central bank wishes to lower the foreign-exchange value of its currency,it will

All of the following accurately describes China's currency peg EXCEPT

The trade balance is

Make use of a graph of the foreign exchange market to show how the Central Bank of Mexico can use an unsterilized intervention to increase the value of its currency,the peso,in terms of the dollar.

All of the following are advantages of currency pegging EXCEPT

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 16: The International Financial System and Monetary Policy

The current account balance plus the financial account balance

At the time monetary union in Europe began in 1999,which of the following countries declined to participate?

What accounted for much of policymakers' concern over U.S.current account deficits in the 1980s,1990s,and 2000s?

Foreign-exchange market interventions will always

When the Fed allows the monetary base to respond to the purchase or sale of domestic currency in the foreign exchange market,the process is called

The speculative attack on the German mark in 1971 resulted in

How did maintaining the gold standard deepen the severity of the Great Depression?

In what sense does the IMF act as a lender of last resort? How might the IMF's actions during the Mexican crisis of the mid-1990s have contributed to the Asian currency crisis a few years later?

International financial transactions are most likely to affect the U.S.monetary base when

Why has the IMF come in for widespread criticism for its handling of the Asian financial crisis?

Which of the following was NOT considered to have been a drawback of the pre-1914 gold standard?

The exchange rate system followed by the United States is known as

The Bretton Woods system was expected to be more stable than the gold standard because

The promise that was to hold the Bretton Woods system together was the agreement that

If a central bank wishes to lower the foreign-exchange value of its currency,it will

All of the following accurately describes China's currency peg EXCEPT

The trade balance is

Make use of a graph of the foreign exchange market to show how the Central Bank of Mexico can use an unsterilized intervention to increase the value of its currency,the peso,in terms of the dollar.

All of the following are advantages of currency pegging EXCEPT

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters