Question 1

The process of "demonetization of gold" involves:

Accepted Answer

A) purchase of gold and supply of money into the market by the central banks to defend the fixed gold prices. 
B) sudden fall in private demand for gold in a country due to discovery of a minable gold deposit. 
C) gold sales into the private market in recent decades by the central banks and the IMF. 
D) sudden increase in the private demand for gold in a country, forcing its central bank to sell off gold. 
A) purchase of gold and supply of money into the market by the central banks to defend the fixed gold prices. 
B) sudden fall in private demand for gold in a country due to discovery of a minable gold deposit. 
C) gold sales into the private market in recent decades by the central banks and the IMF. 
D) sudden increase in the private demand for gold in a country, forcing its central bank to sell off gold. C

Question 2

Which of the following is a major drawback of the EMU?

Accepted Answer

A) Its inability to raise efficiency in production, thus lowering aggregate output of the member nations 
B) Its inability to bring down the transaction costs of trade between member nations 
C) Its inability to use monetary policies to address a recession that affects some member countries but not others 
D) Its inability to keep the actual average inflation rate close to its target inflation rate 
A) Its inability to raise efficiency in production, thus lowering aggregate output of the member nations 
B) Its inability to bring down the transaction costs of trade between member nations 
C) Its inability to use monetary policies to address a recession that affects some member countries but not others 
D) Its inability to keep the actual average inflation rate close to its target inflation rate C

Question 3

In an economic union, member countries do not have free flow of factors of production but have a common internal policy.

Accepted Answer

A) True 
 B)False  False

Question 4

Fiscal policy is highly effective when capital is not mobile and the country has fixed exchange-rates.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following has exchange-rates permanently fixed between countries and a single monetary authority that conducts a single monetary policy for all member countries?

Accepted Answer

A) A free trade area 
B) A monetary union 
C) A currency board 
D) A special economic zone 
A) A free trade area 
B) A monetary union 
C) A currency board 
D) A special economic zone

Question 6

International capital-flow shocks tend to be less disruptive with floating exchange rates than with fixed exchange-rates.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is true?

Accepted Answer

A) A domestic monetary shock is less disruptive with floating exchange-rates. 
B) If foreign capital is highly responsive to changes in interest rates, then domestic spending shocks are less disruptive with fixed exchange-rates. 
C) With floating exchange-rates the transmission of business cycles through foreign trade and repercussion is less than with fixed exchange-rates. 
D) International capital-flow shocks have domestic effects under fixed exchange-rates but not under floating exchange-rates. 
A) A domestic monetary shock is less disruptive with floating exchange-rates. 
B) If foreign capital is highly responsive to changes in interest rates, then domestic spending shocks are less disruptive with fixed exchange-rates. 
C) With floating exchange-rates the transmission of business cycles through foreign trade and repercussion is less than with fixed exchange-rates. 
D) International capital-flow shocks have domestic effects under fixed exchange-rates but not under floating exchange-rates.

Question 8

Making effective monetary policy for the euro zone should be a relatively easy task for the European Central Bank (ECB) since the euro member countries are very similar.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is most effective under a fixed exchange-rate regime?

Accepted Answer

A) Monetary policy if there is a high capital mobility 
B) Fiscal policy if there is a low capital mobility 
C) Fiscal policy if there is a high capital mobility 
D) Monetary policy if there is a low capital mobility 
A) Monetary policy if there is a high capital mobility 
B) Fiscal policy if there is a low capital mobility 
C) Fiscal policy if there is a high capital mobility 
D) Monetary policy if there is a low capital mobility

Question 10

Fiscal policy is most effective in influencing aggregate demand:

Accepted Answer

A) under a floating exchange-rate system with a low degree of capital mobility. 
B) under a fixed exchange-rate system with sterilization. 
C) under a fixed exchange-rate system without sterilization. 
D) under a floating exchange-rate system with a high degree of capital mobility. 
A) under a floating exchange-rate system with a low degree of capital mobility. 
B) under a fixed exchange-rate system with sterilization. 
C) under a fixed exchange-rate system without sterilization. 
D) under a floating exchange-rate system with a high degree of capital mobility.

Question 11

Internal shocks cause less trouble with floating exchange-rates.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following was a criterion to participate in the European Monetary Union?

Accepted Answer

A) The country's inflation rate must be less than or equal to 1.5 percentage points above the average inflation rate for the three lowest inflation EU countries. 
B) The country's budget deficit must be lesser than 10 percent of the value of its GDP. 
C) The gross government debt must be lesser than 100 percent of its GDP. 
D) The country's exchange rates must be maintained within the ERM bands with no realignments during at least the previous 10 years. 
A) The country's inflation rate must be less than or equal to 1.5 percentage points above the average inflation rate for the three lowest inflation EU countries. 
B) The country's budget deficit must be lesser than 10 percent of the value of its GDP. 
C) The gross government debt must be lesser than 100 percent of its GDP. 
D) The country's exchange rates must be maintained within the ERM bands with no realignments during at least the previous 10 years.

Question 13

A domestic spending shock are likely to be least disruptive:

Accepted Answer

A) under a floating exchange-rate system when there is high capital mobility. 
B) under a fixed exchange-rate system when there is high capital mobility. 
C) under a fixed exchange-rate system without sterilization. 
D) under a floating exchange-rate system when there is low capital mobility. 
A) under a floating exchange-rate system when there is high capital mobility. 
B) under a fixed exchange-rate system when there is high capital mobility. 
C) under a fixed exchange-rate system without sterilization. 
D) under a floating exchange-rate system when there is low capital mobility.

Question 14

Which of the following is NOT among the pressures imposed by the fixed-rate system on the government of a country that has ongoing international payments deficits?

Accepted Answer

A) The country's money supply increases substantially resulting in a higher inflation. 
B) The country faces a limit on its ability to sustain deficits. 
C) If the country cannot sterilize, then its money supply will decrease. 
D) The country suffers deterioration in its creditworthiness. 
A) The country's money supply increases substantially resulting in a higher inflation. 
B) The country faces a limit on its ability to sustain deficits. 
C) If the country cannot sterilize, then its money supply will decrease. 
D) The country suffers deterioration in its creditworthiness.

Question 15

Which of the following is a drawback of a floating exchange-rate system?

Accepted Answer

A) Inflation is fully transmitted from one country having a higher rate of inflation to another one having a relatively lower rate. 
B) Monetary policy is ineffective in raising aggregate demand since it cannot be directed toward achieving internal balance. 
C) Overshooting of exchange rates may cause excessive resource shifts into and out of trade oriented industries. 
D) Adverse foreign trade shocks are especially damaging since any intervention by the central bank adds to the recession. 
A) Inflation is fully transmitted from one country having a higher rate of inflation to another one having a relatively lower rate. 
B) Monetary policy is ineffective in raising aggregate demand since it cannot be directed toward achieving internal balance. 
C) Overshooting of exchange rates may cause excessive resource shifts into and out of trade oriented industries. 
D) Adverse foreign trade shocks are especially damaging since any intervention by the central bank adds to the recession.

Question 16

Which of the following is true of a system of fixed exchange-rates adopted by many countries?

Accepted Answer

A) For each of these countries, monetary policy can be a powerful policy tool in managing aggregate demand. 
B) The countries will have large differences in their inflation rates. 
C) The goals and policies can differ substantially across the countries. 
D) The relative stability can promote higher levels of international trade. 
A) For each of these countries, monetary policy can be a powerful policy tool in managing aggregate demand. 
B) The countries will have large differences in their inflation rates. 
C) The goals and policies can differ substantially across the countries. 
D) The relative stability can promote higher levels of international trade.

Question 17

_____ attempts to establish a fixed exchange-rate that is long-lived by focusing on maintaining the fixed exchange-rate and holds only foreign-currency assets.

Accepted Answer

A) A central bank 
B) A monetary union 
C) The IMF 
D) A currency board 
A) A central bank 
B) A monetary union 
C) The IMF 
D) A currency board

Question 18

_____ fixed the exchange rates of Germany, France, Italy, the Netherlands, Belgium, Denmark, Ireland, and Luxembourg beginning in 1979.

Accepted Answer

A) The International Monetary Fund 
B) The Exchange Rate Mechanism 
C) The European Central Bank 
D) A currency board 
A) The International Monetary Fund 
B) The Exchange Rate Mechanism 
C) The European Central Bank 
D) A currency board

Question 19

One of the benefits of the European Monetary Union is that the governments of the member nations:

Accepted Answer

A) are free to erect trade barriers according to their needs. 
B) will be forced to maintain a balanced budget. 
C) can eliminate all exchange-rate concerns by participating in EMU. 
D) are able to deal with their domestic imbalances independently. 
A) are free to erect trade barriers according to their needs. 
B) will be forced to maintain a balanced budget. 
C) can eliminate all exchange-rate concerns by participating in EMU. 
D) are able to deal with their domestic imbalances independently.

Question 20

"A country that initially has a floating exchange rate and a high inflation rate can use a shift to a fixed exchange rate as part of its effort to lower its inflation rate." Is the statement correct? Why or why not?

Accepted Answer

The statement given above is correct. Wi

Exam 25: National and Global Choices: Floating Rates and the Alternatives

The process of "demonetization of gold" involves:

Which of the following is a major drawback of the EMU?

In an economic union, member countries do not have free flow of factors of production but have a common internal policy.

Fiscal policy is highly effective when capital is not mobile and the country has fixed exchange-rates.

Which of the following has exchange-rates permanently fixed between countries and a single monetary authority that conducts a single monetary policy for all member countries?

International capital-flow shocks tend to be less disruptive with floating exchange rates than with fixed exchange-rates.

Which of the following statements is true?

Making effective monetary policy for the euro zone should be a relatively easy task for the European Central Bank (ECB) since the euro member countries are very similar.

Which of the following is most effective under a fixed exchange-rate regime?

Fiscal policy is most effective in influencing aggregate demand:

Internal shocks cause less trouble with floating exchange-rates.

Which of the following was a criterion to participate in the European Monetary Union?

A domestic spending shock are likely to be least disruptive:

Which of the following is NOT among the pressures imposed by the fixed-rate system on the government of a country that has ongoing international payments deficits?

Which of the following is a drawback of a floating exchange-rate system?

Which of the following is true of a system of fixed exchange-rates adopted by many countries?

_____ attempts to establish a fixed exchange-rate that is long-lived by focusing on maintaining the fixed exchange-rate and holds only foreign-currency assets.

_____ fixed the exchange rates of Germany, France, Italy, the Netherlands, Belgium, Denmark, Ireland, and Luxembourg beginning in 1979.

One of the benefits of the European Monetary Union is that the governments of the member nations:

"A country that initially has a floating exchange rate and a high inflation rate can use a shift to a fixed exchange rate as part of its effort to lower its inflation rate." Is the statement correct? Why or why not?

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

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