Question 1

A balance of payments crisis is best described as

Accepted Answer

A)  a sharp change in interest rates sparked by a change in expectations about the level of imports. 
B)  a sharp change in foreign reserves sparked by a change in expectations about the future exchange rate. 
C)  a sharp change in interest rates sparked by a change in expectations about the level of exports. 
D)  a sharp change in foreign reserves sparked by a change in expectations about the level of imports. 
E)  a sharp change in foreign reserves sparked by a change in expectations about domestic production. 
A)  a sharp change in interest rates sparked by a change in expectations about the level of imports. 
B)  a sharp change in foreign reserves sparked by a change in expectations about the future exchange rate. 
C)  a sharp change in interest rates sparked by a change in expectations about the level of exports. 
D)  a sharp change in foreign reserves sparked by a change in expectations about the level of imports. 
E)  a sharp change in foreign reserves sparked by a change in expectations about domestic production.

Question 2

If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant, can it still keep the exchange rate fixed at   ? Please explain with the aid of a figure.

Accepted Answer

@#IMG-DLM& No, the rise in output leads to an exce

Question 3

A balance sheet for the central bank of Pecunia is shown below:
Central Bank Balance Sheet
Assets Liabilities
Foreign assets $1,000 Deposits held by private banks $500
Domestic assets $1,500 Currency in circulation $2,000
Please write the new balance sheet if the bank purchased $100 in foreign bonds by writing a check on itself.

Accepted Answer

Central Bank Balance Sheet
Ass

Question 4

Under fixed rates, which one of the following statements is the MOST accurate?

Accepted Answer

A)  Monetary policy can affect only output. 
B)  Monetary policy can affect only employment. 
C)  Monetary policy can affect only international reserves. 
D)  Monetary policy can not affect international reserves. 
E)  Monetary policy can only affect money supply. 
A)  Monetary policy can affect only output. 
B)  Monetary policy can affect only employment. 
C)  Monetary policy can affect only international reserves. 
D)  Monetary policy can not affect international reserves. 
E)  Monetary policy can only affect money supply.

Question 5

Please define and give an example of sterilized foreign exchange intervention.

Accepted Answer

Sterilized foreign exchange intervention

Question 6

The expectation of future revaluation causes a balance of payments crisis marked by

Accepted Answer

A)  a sharp rise in reserves and a fall in the home interest rate below the world interest rate. 
B)  a sharp fall in reserves and an even bigger fall in the home interest rate below the world interest rate. 
C)  a sharp fall in reserves and a rise in the home interest rate above the world interest rate. 
D)  a sharp rise in reserves and an even greater rise in the home interest rate above the world interest. 
E)  a sharp fall in reserves and an unchanged home interest rate. 
A)  a sharp rise in reserves and a fall in the home interest rate below the world interest rate. 
B)  a sharp fall in reserves and an even bigger fall in the home interest rate below the world interest rate. 
C)  a sharp fall in reserves and a rise in the home interest rate above the world interest rate. 
D)  a sharp rise in reserves and an even greater rise in the home interest rate above the world interest. 
E)  a sharp fall in reserves and an unchanged home interest rate.

Question 7

Imperfect asset substitutability exists

Accepted Answer

A)  when it is possible for the expected returns on two assets to be different. 
B)  when the expected returns on two assets are the same. 
C)  only when one asset is foreign and the other is domestic. 
D)  when there is risk in the foreign exchange market. 
E)  when assets are liquid. 
A)  when it is possible for the expected returns on two assets to be different. 
B)  when the expected returns on two assets are the same. 
C)  only when one asset is foreign and the other is domestic. 
D)  when there is risk in the foreign exchange market. 
E)  when assets are liquid.

Question 8

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  Appreciation is a rise in E when the exchange rate floats while revaluation is a fall in E when the exchange rate is fixed. 
B)  Appreciation is a fall in E when the exchange rate floats while revaluation is a fall in E when the exchange rate is fixed. 
C)  Appreciation is a fall in E when the exchange rate is fixed while revaluation is a fall in E when the exchange rate is flexible. 
D)  Appreciation is a fall in E when the exchange rate floats while revaluation is a rise in E when the exchange rate is fixed. 
E)  Appreciation is a rise in E when the exchange rate floats while revaluation is a rise in E when the exchange rate is fixed. 
A)  Appreciation is a rise in E when the exchange rate floats while revaluation is a fall in E when the exchange rate is fixed. 
B)  Appreciation is a fall in E when the exchange rate floats while revaluation is a fall in E when the exchange rate is fixed. 
C)  Appreciation is a fall in E when the exchange rate is fixed while revaluation is a fall in E when the exchange rate is flexible. 
D)  Appreciation is a fall in E when the exchange rate floats while revaluation is a rise in E when the exchange rate is fixed. 
E)  Appreciation is a rise in E when the exchange rate floats while revaluation is a rise in E when the exchange rate is fixed.

Question 9

Use a figure to illustrate the ineffectiveness of monetary policy to spur on an economy under a fixed exchange rate.

Accepted Answer

@#IMG-DLM& The initial equilibrium rests at point

Question 10

Central banks often intervene in currency markets. This activity is called

Accepted Answer

A)  super-pegging. 
B)  flexible floating. 
C)  currency warfare. 
D)  fixing exchange rates. 
E)  managed floating. 
A)  super-pegging. 
B)  flexible floating. 
C)  currency warfare. 
D)  fixing exchange rates. 
E)  managed floating.

Question 11

Define devaluation and use a figure to show the effect of a currency devaluation on the economy.

Accepted Answer

@#IMG-DLM& A devaluation occurs when the central b

Question 12

Please briefly describe what is meant by a gold exchange standard.

Accepted Answer

Under a gold exchange standard, central

Question 13

Under fixed exchange rate, in general which one of the following statements is the MOST accurate?

Accepted Answer

A)  The following condition should hold for domestic money market equilibrium: Ms/P = L(R   , Y). 
B)  The following condition should hold for domestic money market equilibrium: Md/P = L(R   , Y). 
C)  The following condition should hold for domestic money market equilibrium: Ms = L(R   , Y). 
D)  The following condition should hold for domestic money market equilibrium: P = L(R   , Y). 
E)  The following condition should hold for domestic money market equilibrium: R*Md/P = L(Y). 
A)  The following condition should hold for domestic money market equilibrium: Ms/P = L(R   , Y). 
B)  The following condition should hold for domestic money market equilibrium: Md/P = L(R   , Y). 
C)  The following condition should hold for domestic money market equilibrium: Ms = L(R   , Y). 
D)  The following condition should hold for domestic money market equilibrium: P = L(R   , Y). 
E)  The following condition should hold for domestic money market equilibrium: R*Md/P = L(Y).

Question 14

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  Fiscal policy has the same effect on employment under fixed and flexible exchange rate regimes. 
B)  Fiscal policy affects employment less under fixed than under flexible exchange rate regimes. 
C)  Fiscal policy affects employment more under fixed than under flexible exchange rate regimes. 
D)  Fiscal policy cannot affect employment under fixed exchange rate but does affect output under flexible exchange rate regimes. 
E)  Fiscal policy can affect employment under fixed exchange rate regimes, but does not affect output under flexible exchange rate regimes. 
A)  Fiscal policy has the same effect on employment under fixed and flexible exchange rate regimes. 
B)  Fiscal policy affects employment less under fixed than under flexible exchange rate regimes. 
C)  Fiscal policy affects employment more under fixed than under flexible exchange rate regimes. 
D)  Fiscal policy cannot affect employment under fixed exchange rate but does affect output under flexible exchange rate regimes. 
E)  Fiscal policy can affect employment under fixed exchange rate regimes, but does not affect output under flexible exchange rate regimes.

Question 15

Capital flight

Accepted Answer

A)  increases reserves. 
B)  is never associated with the expectation of devaluation. 
C)  may undo expected devaluation. 
D)  reduces losses during a devaluation scare. 
E)  decreases reserves and may induce devaluation. 
A)  increases reserves. 
B)  is never associated with the expectation of devaluation. 
C)  may undo expected devaluation. 
D)  reduces losses during a devaluation scare. 
E)  decreases reserves and may induce devaluation.

Question 16

From 1837 and up until the Civil War, the United States adhered to a

Accepted Answer

A)  gold standard. 
B)  silver standard. 
C)  bimetallic standard. 
D)  bronze standard. 
E)  copper standard. 
A)  gold standard. 
B)  silver standard. 
C)  bimetallic standard. 
D)  bronze standard. 
E)  copper standard.

Question 17

Describe the effect of the 2008-2009 global financial crisis on the Swiss franc and the central bank's efforts to respond to the resulting problems.

Accepted Answer

The 2008-2009 global financial crisis re

Question 18

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  Under a fixed exchange rate, central bank monetary tools are powerless to affect the economy's money supply. 
B)  Under a flexible exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. 
C)  Under a fixed exchange rate, fiscal policy tools are powerless to affect the economy's money supply or its output. 
D)  Under a fixed exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. 
E)  Under a dirty float exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. 
A)  Under a fixed exchange rate, central bank monetary tools are powerless to affect the economy's money supply. 
B)  Under a flexible exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. 
C)  Under a fixed exchange rate, fiscal policy tools are powerless to affect the economy's money supply or its output. 
D)  Under a fixed exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. 
E)  Under a dirty float exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output.

Question 19

Balance of payments crises under fixed exchange rates occur because of

Accepted Answer

A)  government policies that are inconsistent with fixed exchange rates. 
B)  punitive currency wars. 
C)  global inflation and trade imbalances due to war. 
D)  excessive exports and imports that overload the global system. 
E)  monotonic expansion in global currency volume. 
A)  government policies that are inconsistent with fixed exchange rates. 
B)  punitive currency wars. 
C)  global inflation and trade imbalances due to war. 
D)  excessive exports and imports that overload the global system. 
E)  monotonic expansion in global currency volume.

Question 20

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  Devaluation reflects a deliberate government decision. 
B)  Depreciation reflects a deliberate government decision. 
C)  Devaluation reflects a deliberate government decision while depreciation is an outcome of government actions and market forces acting together. 
D)  Depreciation reflects a deliberate government decision while devaluation is an outcome of government actions and market forces acting together. 
E)  Devaluation and depreciation have the same meaning and the same causes. 
A)  Devaluation reflects a deliberate government decision. 
B)  Depreciation reflects a deliberate government decision. 
C)  Devaluation reflects a deliberate government decision while depreciation is an outcome of government actions and market forces acting together. 
D)  Depreciation reflects a deliberate government decision while devaluation is an outcome of government actions and market forces acting together. 
E)  Devaluation and depreciation have the same meaning and the same causes.

Exam 18: Fixed Exchange Rates and Foreign Exchange Intervention

A balance of payments crisis is best described as

If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant, can it still keep the exchange rate fixed at ? Please explain with the aid of a figure.

Under fixed rates, which one of the following statements is the MOST accurate?

Please define and give an example of sterilized foreign exchange intervention.

The expectation of future revaluation causes a balance of payments crisis marked by

Imperfect asset substitutability exists

Which one of the following statements is the MOST accurate?

Use a figure to illustrate the ineffectiveness of monetary policy to spur on an economy under a fixed exchange rate.

Central banks often intervene in currency markets. This activity is called

Define devaluation and use a figure to show the effect of a currency devaluation on the economy.

Please briefly describe what is meant by a gold exchange standard.

Under fixed exchange rate, in general which one of the following statements is the MOST accurate?

Which one of the following statements is the MOST accurate?

Capital flight

From 1837 and up until the Civil War, the United States adhered to a

Describe the effect of the 2008-2009 global financial crisis on the Swiss franc and the central bank's efforts to respond to the resulting problems.

Which one of the following statements is the MOST accurate?

Balance of payments crises under fixed exchange rates occur because of

Which one of the following statements is the MOST accurate?

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

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

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