Question 1

A central bank that desires a (an) ______ of its currency would likely implement a ______ monetary policy.

Accepted Answer

A)  depreciation, contractionary 
B)  depreciation, neutral 
C)  appreciation, contractionary 
D)  appreciation, expansionary 
A)  depreciation, contractionary 
B)  depreciation, neutral 
C)  appreciation, contractionary 
D)  appreciation, expansionary

Question 2

The Bretton Woods system of 1944-1973 was based upon

Accepted Answer

A)  the international silver standard. 
B)  the international gold standard. 
C)  freely fluctuating exchange rates. 
D)  relatively stable exchange rates. 
A)  the international silver standard. 
B)  the international gold standard. 
C)  freely fluctuating exchange rates. 
D)  relatively stable exchange rates.

Question 3

Under a pegged exchange rate system, which does NOT explain why a country would have a balance-of-payments deficit?

Accepted Answer

A)  very high rates of inflation occur domestically 
B)  foreigners discriminate against domestic products 
C)  technological advance is superior abroad 
D)  the domestic currency is undervalued relative to other currencies 
A)  very high rates of inflation occur domestically 
B)  foreigners discriminate against domestic products 
C)  technological advance is superior abroad 
D)  the domestic currency is undervalued relative to other currencies

Question 4

Under the Bretton Woods system of 1944-1973, member countries could re-peg their currencies up to _____, without permission of the International Monetary Fund.

Accepted Answer

A)  2 percent 
B)  5 percent 
C)  10 percent 
D)  25 percent 
A)  2 percent 
B)  5 percent 
C)  10 percent 
D)  25 percent

Question 5

Under a system of fixed exchange rates, the purpose of currency revaluation is to cause the exchange value of a currency to ______, thus counteracting a balance-of-payments ______.

Accepted Answer

A)  depreciate, deficit 
B)  depreciate, surplus 
C)  appreciate, deficit 
D)  appreciate, surplus 
A)  depreciate, deficit 
B)  depreciate, surplus 
C)  appreciate, deficit 
D)  appreciate, surplus

Question 6

Seigniorage refers to

Accepted Answer

A)  the extra tax revenue received by governments when people are pushed up into higher tax brackets. 
B)  the loss of purchasing power of income due to higher prices. 
C)  the revenue a government receives by issuing money. 
D)  the profits that corporations realize on their foreign direct investments. 
A)  the extra tax revenue received by governments when people are pushed up into higher tax brackets. 
B)  the loss of purchasing power of income due to higher prices. 
C)  the revenue a government receives by issuing money. 
D)  the profits that corporations realize on their foreign direct investments.

Question 7

Rather than constructing their own currency baskets, many nations peg the value of their currencies to a currency basket defined by the International Monetary Fund.Which of the following is an example of this type of basket?

Accepted Answer

A)  IMF tranche 
B)  special drawing rights 
C)  primary reserve asset 
D)  swap facility 
A)  IMF tranche 
B)  special drawing rights 
C)  primary reserve asset 
D)  swap facility

Question 8

Figure 15.2 Market for the British Pound  
-Refer to Figure 15.2.Suppose that the United States increases its imports from England.Other things equal, under a floating exchange rate system the new equilibrium exchange rate would be

Accepted Answer

A)  $0.40 per pound. 
B)  $0.60 per pound. 
C)  $0.80 per pound. 
D)  $1 per pound. 
A)  $0.40 per pound. 
B)  $0.60 per pound. 
C)  $0.80 per pound. 
D)  $1 per pound.

Question 9

Figure 15.2 Market for the British Pound  
-Refer to Figure 15.2.Suppose the demand for pounds increases from D0  to D1.Other things equal, under a fixed exchange rate system the U.S.exchange stabilization fund could maintain a fixed exchange rate of $0.80 per pound by

Accepted Answer

A)  selling pounds for dollars on the foreign exchange market. 
B)  selling dollars for pounds on the foreign exchange market. 
C)  decreasing U.S. exports, thus decreasing the supply of pounds. 
D)  stimulating U.S. imports, thus increasing the demand for pounds. 
A)  selling pounds for dollars on the foreign exchange market. 
B)  selling dollars for pounds on the foreign exchange market. 
C)  decreasing U.S. exports, thus decreasing the supply of pounds. 
D)  stimulating U.S. imports, thus increasing the demand for pounds.

Question 10

Proponents of freely floating exchange rates maintain that

Accepted Answer

A)  central banks can easily modify fluctuations in exchange rates. 
B)  the system allows policy makers freedom in pursuing domestic economic goals. 
C)  inelastic demand schedules prevent large fluctuations in exchange rates. 
D)  inelastic supply schedules prevent large fluctuations in exchange rates. 
A)  central banks can easily modify fluctuations in exchange rates. 
B)  the system allows policy makers freedom in pursuing domestic economic goals. 
C)  inelastic demand schedules prevent large fluctuations in exchange rates. 
D)  inelastic supply schedules prevent large fluctuations in exchange rates.

Question 11

If a central bank was to prevent its currency from appreciating, it would likely adopt a (an) ______ monetary policy to ______ the domestic interest rate, thus strengthening its currency.

Accepted Answer

A)  contractionary, decrease 
B)  contractionary, increase 
C)  expansionary, decrease 
D)  expansionary, increase 
A)  contractionary, decrease 
B)  contractionary, increase 
C)  expansionary, decrease 
D)  expansionary, increase

Question 12

The purpose of an exchange stabilization fund is to ensure that the market exchange rate does not deviate beyond unacceptable levels from the official exchange rate.

Accepted Answer

A) True 
 B)False

Question 13

Exchange rate controls

Accepted Answer

A)  achieved prominence during the economic crises of the late 1930s. 
B)  were popular immediately after World War II. 
C)  are widely used by the developing nations. 
D)  All of these are correct. 
A)  achieved prominence during the economic crises of the late 1930s. 
B)  were popular immediately after World War II. 
C)  are widely used by the developing nations. 
D)  All of these are correct.

Question 14

If Uganda revalues its shilling by 20 percent and Burundi devalues its franc by 5 percent, the shillings exchange value will appreciate by 25 percent against the franc.

Accepted Answer

A) True 
 B)False

Question 15

An objective of the dollarization of the Mexican economy would be to

Accepted Answer

A)  shield its economy from hyperinflation, currency depreciation, and capital flight. 
B)  allow the Federal Reserve to be its lender of last resort. 
C)  ensure that its monetary policy is independent of the Federal Reserve. 
D)  permit it to benefit from tariffs and subsidies imposed by the U.S. government. 
A)  shield its economy from hyperinflation, currency depreciation, and capital flight. 
B)  allow the Federal Reserve to be its lender of last resort. 
C)  ensure that its monetary policy is independent of the Federal Reserve. 
D)  permit it to benefit from tariffs and subsidies imposed by the U.S. government.

Question 16

If the Federal Reserve wants to see the dollar's exchange value depreciate, it could pursue a contractionary monetary policy.

Accepted Answer

A) True 
 B)False

Question 17

During the 1970s, the European Union, in its quest for monetary union, adopted what came to be referred to as the "Community Snake." This system was a/an

Accepted Answer

A)  adjustable pegged exchange rate system. 
B)  dual exchange rate system. 
C)  jointly floating exchange rate system. 
D)  freely floating exchange rate system. 
A)  adjustable pegged exchange rate system. 
B)  dual exchange rate system. 
C)  jointly floating exchange rate system. 
D)  freely floating exchange rate system.

Question 18

A potential disadvantage of freely floating exchange rates is that there would

Accepted Answer

A)  exist excessive amounts of hedging in the foreign exchange markets. 
B)  be a lack of incentive to initiate exchange arbitrage. 
C)  be excessive amounts of destabilizing speculation. 
D)  exist a devaluation bias in the exchange markets. 
A)  exist excessive amounts of hedging in the foreign exchange markets. 
B)  be a lack of incentive to initiate exchange arbitrage. 
C)  be excessive amounts of destabilizing speculation. 
D)  exist a devaluation bias in the exchange markets.

Question 19

Under an adjustable pegged system, market exchange rates are intended to be maintained within a narrow band around a currency's official exchange rate.In the case of fundamental disequilibrium, the currency can be devalued or revalued to promote current-account equilibrium.

Accepted Answer

A) True 
 B)False

Question 20

Figure 15.2 Market for the British Pound  
-Refer to Figure 15.2.Demand and supply of British Pounds is initially D0  and S0.With a system of floating exchange rates, the equilibrium exchange rate is

Accepted Answer

A)  $0.40 per pound. 
B)  $0.60 per pound. 
C)  $0.80 per pound. 
D)  $1 per pound. 
A)  $0.40 per pound. 
B)  $0.60 per pound. 
C)  $0.80 per pound. 
D)  $1 per pound.

A central bank that desires a (an) of its currency would likely implement a monetary policy.

The Bretton Woods system of 1944-1973 was based upon

Under a pegged exchange rate system, which does NOT explain why a country would have a balance-of-payments deficit?

Under the Bretton Woods system of 1944-1973, member countries could re-peg their currencies up to _____, without permission of the International Monetary Fund.

Under a system of fixed exchange rates, the purpose of currency revaluation is to cause the exchange value of a currency to , thus counteracting a balance-of-payments .

Seigniorage refers to

Rather than constructing their own currency baskets, many nations peg the value of their currencies to a currency basket defined by the International Monetary Fund.Which of the following is an example of this type of basket?

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Suppose that the United States increases its imports from England.Other things equal, under a floating exchange rate system the new equilibrium exchange rate would be

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Suppose the demand for pounds increases from D₀ to D₁.Other things equal, under a fixed exchange rate system the U.S.exchange stabilization fund could maintain a fixed exchange rate of $0.80 per pound by

Proponents of freely floating exchange rates maintain that

If a central bank was to prevent its currency from appreciating, it would likely adopt a (an) monetary policy to the domestic interest rate, thus strengthening its currency.

The purpose of an exchange stabilization fund is to ensure that the market exchange rate does not deviate beyond unacceptable levels from the official exchange rate.

Exchange rate controls

If Uganda revalues its shilling by 20 percent and Burundi devalues its franc by 5 percent, the shillings exchange value will appreciate by 25 percent against the franc.

An objective of the dollarization of the Mexican economy would be to

If the Federal Reserve wants to see the dollar's exchange value depreciate, it could pursue a contractionary monetary policy.

During the 1970s, the European Union, in its quest for monetary union, adopted what came to be referred to as the "Community Snake." This system was a/an

A potential disadvantage of freely floating exchange rates is that there would

Under an adjustable pegged system, market exchange rates are intended to be maintained within a narrow band around a currency's official exchange rate.In the case of fundamental disequilibrium, the currency can be devalued or revalued to promote current-account equilibrium.

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Demand and supply of British Pounds is initially D₀ and S₀.With a system of floating exchange rates, the equilibrium exchange rate is

The International Economy and Globalization

Foundations of Modern Trade Theory Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange Rate Determination

Mechanisms of International Adjustment

Exchange Rate Systems and Currency Crises

Filters

Exam 14: Exchange Rate Adjustments and the Balance of Payments

A central bank that desires a (an) ______ of its currency would likely implement a ______ monetary policy.

The Bretton Woods system of 1944-1973 was based upon

Under a pegged exchange rate system, which does NOT explain why a country would have a balance-of-payments deficit?

Under the Bretton Woods system of 1944-1973, member countries could re-peg their currencies up to _____, without permission of the International Monetary Fund.

Under a system of fixed exchange rates, the purpose of currency revaluation is to cause the exchange value of a currency to ______, thus counteracting a balance-of-payments ______.

Seigniorage refers to

Rather than constructing their own currency baskets, many nations peg the value of their currencies to a currency basket defined by the International Monetary Fund.Which of the following is an example of this type of basket?

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Suppose that the United States increases its imports from England.Other things equal, under a floating exchange rate system the new equilibrium exchange rate would be

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Suppose the demand for pounds increases from D0 to D1.Other things equal, under a fixed exchange rate system the U.S.exchange stabilization fund could maintain a fixed exchange rate of $0.80 per pound by

Proponents of freely floating exchange rates maintain that

If a central bank was to prevent its currency from appreciating, it would likely adopt a (an) ______ monetary policy to ______ the domestic interest rate, thus strengthening its currency.

The purpose of an exchange stabilization fund is to ensure that the market exchange rate does not deviate beyond unacceptable levels from the official exchange rate.

Exchange rate controls

If Uganda revalues its shilling by 20 percent and Burundi devalues its franc by 5 percent, the shillings exchange value will appreciate by 25 percent against the franc.

An objective of the dollarization of the Mexican economy would be to

If the Federal Reserve wants to see the dollar's exchange value depreciate, it could pursue a contractionary monetary policy.

During the 1970s, the European Union, in its quest for monetary union, adopted what came to be referred to as the "Community Snake." This system was a/an

A potential disadvantage of freely floating exchange rates is that there would

Under an adjustable pegged system, market exchange rates are intended to be maintained within a narrow band around a currency's official exchange rate.In the case of fundamental disequilibrium, the currency can be devalued or revalued to promote current-account equilibrium.

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Demand and supply of British Pounds is initially D0 and S0.With a system of floating exchange rates, the equilibrium exchange rate is

The International Economy and Globalization

Foundations of Modern Trade Theory Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange Rate Determination

Mechanisms of International Adjustment

Exchange Rate Systems and Currency Crises

Filters

A central bank that desires a (an) of its currency would likely implement a monetary policy.

Under a system of fixed exchange rates, the purpose of currency revaluation is to cause the exchange value of a currency to , thus counteracting a balance-of-payments .

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Suppose the demand for pounds increases from D₀ to D₁.Other things equal, under a fixed exchange rate system the U.S.exchange stabilization fund could maintain a fixed exchange rate of $0.80 per pound by

If a central bank was to prevent its currency from appreciating, it would likely adopt a (an) monetary policy to the domestic interest rate, thus strengthening its currency.

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Demand and supply of British Pounds is initially D₀ and S₀.With a system of floating exchange rates, the equilibrium exchange rate is