Exam 21: Exchange Rate Regimes

Policy makers can select from a number of different exchange rate regimes and exchange rate policies. Which of the following policies would most likely represent a hard peg?

Policy makers can select from a number of different exchange rate regimes. One of those options is a "hard peg". Which of the following best represents a hard peg?

Part of the reason that triggered the 1992 EMS Crisis was that:

A country which does not devalue when financial markets expect it to will probably suffer:

Assume that policy makers are pursuing a fixed exchange rate regime and that output is initially greater than the natural level of output. The economy will tend to move toward the natural level of output when which of the following occur?

A number of situations can arise that will cause individuals to believe that policy makers might change the pegged value of a fixed exchange rate. Suppose financial market participants expect a devaluation in the future. The interest rate parity condition will be maintained if which of the following policy actions are taken in the current period?

Which of the following, according to the Maastricht treaty, is a condition for participating in the common currency area?

Assume that policy makers are pursuing a fixed exchange rate regime and the economy is initially operating at the natural level of output. Which of the following will occur as a result of a revaluation?

The European Central Bank is located in which country?

When policy makers decide to devalue the currency, such an action generally represents:

Use the following information to answer the question(s) below: The exchange rate between the Australian dollar and the British pound is 0.65 (i.e., 0.65 pounds per Australian dollar). In the U.K., the price level is 1.0 and the interest rate is 15%. In Australia, the price level is 0.5 and the interest rate is 10%. The inflation rate in both countries is zero. -Refer to the information above. The real exchange rate, from the Australian perspective, is:

Suppose the country that pegs its currency has an overvalued real exchange rate and that output is currently above the natural level of output. Which of the following will occur as the economy adjusts to this situation?

Assume that policy makers are pursuing a fixed exchange rate regime and that output is initially less than the natural level of output. The economy will tend to move toward the natural level of output when which of the following occur?

After Britain returned to the Gold Standard in the 1920s, the British pound was:

Explain why the nominal exchange rate must overshoot in the short run when the central bank pursues monetary expansion by lowering the price target?

An adjustment of central parities in the EMS is called a:

What is an "optimal currency area"? Also, discuss the conditions that must be satisfied for an optimal currency area to exist.

An increase in the domestic one- year interest rate expected to occur in, say, two years will, all else fixed, have which of the following effects in a flexible exchange rate regime?

t n+ The expected future nominal exchange rate in the medium run, E e, is assumed to be the Nominal exchange rate at which:

Suppose the economy is operating below the natural level of output. Discuss the arguments for and against using a devaluation in such a situation.