Question 1

The buying of foreign exchange by the central bank causes the domestic money supply to fall.

Accepted Answer

A) True 
 B)False

Question 2

A contractionary fiscal policy is not very effective when a country adopts a fixed exchange rate.

Accepted Answer

A) True 
 B)False

Question 3

The Euro began circulating as a currency for all economic transactions in:

Accepted Answer

A)  1957 
B)  1971 
C)  1989 
D)  2002 
E)  2007 
A)  1957 
B)  1971 
C)  1989 
D)  2002 
E)  2007

Question 4

Which of the following is the term that refers to the buying and selling of foreign exchange by a central bank?

Accepted Answer

A)  Sterilization 
B)  Exchange controls 
C)  Open market operations 
D)  Intervention 
E)  monetary policy 
A)  Sterilization 
B)  Exchange controls 
C)  Open market operations 
D)  Intervention 
E)  monetary policy

Question 5

Show how a central bank fixes the exchange rate in the face of a rising domestic interest rate.

Accepted Answer

When a central bank decides to fix the e

Question 6

Exchange controls tend to create surpluses of foreign exchange that are difficult for the government to dispose of.

Accepted Answer

A) True 
 B)False

Question 7

Under a fixed exchange rate system, monetary policy is very effective in achieving internal balance.

Accepted Answer

A) True 
 B)False

Question 8

Under a currency board system, the central bank holds no domestic currency.

Accepted Answer

A) True 
 B)False

Question 9

A central bank could buy foreign exchange forever but it cannot sell foreign exchange forever.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not one of the effects of a contractionary fiscal policy?

Accepted Answer

A)  A higher government budget deficit 
B)  A lower interest rate 
C)  Higher capital inflows 
D)  Higher interest rates 
E)  lower real GDP 
A)  A higher government budget deficit 
B)  A lower interest rate 
C)  Higher capital inflows 
D)  Higher interest rates 
E)  lower real GDP

Question 11

An expansionary fiscal policy:

Accepted Answer

A)  puts upward pressure on interest rates causing the government to sell foreign exchange. 
B)  puts downward pressure on interest rates causing the government to sell foreign exchange. 
C)  puts upward pressure on interest rates causing the government to buy foreign exchange. 
D)  puts downward pressure on interest rates causing the government to buy foreign exchange. 
E)  does not change interest rates causing the government to sell foreign exchange. 
A)  puts upward pressure on interest rates causing the government to sell foreign exchange. 
B)  puts downward pressure on interest rates causing the government to sell foreign exchange. 
C)  puts upward pressure on interest rates causing the government to buy foreign exchange. 
D)  puts downward pressure on interest rates causing the government to buy foreign exchange. 
E)  does not change interest rates causing the government to sell foreign exchange.

Question 12

Under fixed exchange rates, when is monetary policy inconsistent with both internal and external balance?

Accepted Answer

A)  When the economy has unemployment and a current account deficit 
B)  When the economy has unemployment and a current account surplus 
C)  When the economy has inflation and a current account deficit 
D)  When the economy has both inflation and high unemployment 
E)  When the economy has both high inflation and high unemployment 
A)  When the economy has unemployment and a current account deficit 
B)  When the economy has unemployment and a current account surplus 
C)  When the economy has inflation and a current account deficit 
D)  When the economy has both inflation and high unemployment 
E)  When the economy has both high inflation and high unemployment

Question 13

Under a fixed exchange rate system and freely flowing capital:

Accepted Answer

A)  monetary policy is ineffective. 
B)  fiscal policy is ineffective. 
C)  monetary policy is very effective. 
D)  the supply of money is very important. 
E)  the demand for money will fall. 
A)  monetary policy is ineffective. 
B)  fiscal policy is ineffective. 
C)  monetary policy is very effective. 
D)  the supply of money is very important. 
E)  the demand for money will fall.

Question 14

Internal balance is always the same thing as external balance.

Accepted Answer

A) True 
 B)False

Question 15

If a central bank intervenes in the foreign exchange market and does nothing else then:

Accepted Answer

A)  the current account will get worse. 
B)  the current account will correct itself automatically. 
C)  the money supply will be unaffected. 
D)  sterilization will occur. 
E)  sterilization will be ineffective. 
A)  the current account will get worse. 
B)  the current account will correct itself automatically. 
C)  the money supply will be unaffected. 
D)  sterilization will occur. 
E)  sterilization will be ineffective.

Question 16

As a government adopts an expansionary fiscal policy:

Accepted Answer

A)  the demand for loanable funds increases causing interest rates to rise. 
B)  the demand for loanable funds decreases causing interest rates to fall. 
C)  the supply of loanable funds increases causing interest rates to rise. 
D)  the supply of loanable funds decreases causing interest rates to fall. 
E)  neither the supply nor the demand for loanable funds changes. 
A)  the demand for loanable funds increases causing interest rates to rise. 
B)  the demand for loanable funds decreases causing interest rates to fall. 
C)  the supply of loanable funds increases causing interest rates to rise. 
D)  the supply of loanable funds decreases causing interest rates to fall. 
E)  neither the supply nor the demand for loanable funds changes.

Question 17

In an open economy with fixed exchange rates, a contractionary fiscal policy:

Accepted Answer

A)  is very effective in changing equilibrium output. 
B)  is not effective in changing equilibrium output. 
C)  is effective in changing the exchange rate. 
D)  is not effective in changing capital flows between countries. 
E)  does not change capital flows or the exchange rate. 
A)  is very effective in changing equilibrium output. 
B)  is not effective in changing equilibrium output. 
C)  is effective in changing the exchange rate. 
D)  is not effective in changing capital flows between countries. 
E)  does not change capital flows or the exchange rate.

Question 18

If a country maintains a fixed exchange rate by intervening in the foreign exchange market with no other actions by the central bank then it does not have a _____ policy.

Accepted Answer

A)  expansionary fiscal 
B)  automatic fiscal 
C)  discretionary monetary 
D)  exchange rate 
E)  discretionary fiscal 
A)  expansionary fiscal 
B)  automatic fiscal 
C)  discretionary monetary 
D)  exchange rate 
E)  discretionary fiscal

Question 19

A decrease in interest rates would lead a central bank to buy foreign exchange if it wanted to keep the exchange rate from changing.

Accepted Answer

A) True 
 B)False

Question 20

An expansionary fiscal policy in an open economy with freely mobile capital and fixed exchange rates is more effective in changing equilibrium output when compared to a closed economy.

Accepted Answer

A) True 
 B)False

The buying of foreign exchange by the central bank causes the domestic money supply to fall.

A contractionary fiscal policy is not very effective when a country adopts a fixed exchange rate.

The Euro began circulating as a currency for all economic transactions in:

Which of the following is the term that refers to the buying and selling of foreign exchange by a central bank?

Show how a central bank fixes the exchange rate in the face of a rising domestic interest rate.

Exchange controls tend to create surpluses of foreign exchange that are difficult for the government to dispose of.

Under a fixed exchange rate system, monetary policy is very effective in achieving internal balance.

Under a currency board system, the central bank holds no domestic currency.

A central bank could buy foreign exchange forever but it cannot sell foreign exchange forever.

Which of the following is not one of the effects of a contractionary fiscal policy?

An expansionary fiscal policy:

Under fixed exchange rates, when is monetary policy inconsistent with both internal and external balance?

Under a fixed exchange rate system and freely flowing capital:

Internal balance is always the same thing as external balance.

If a central bank intervenes in the foreign exchange market and does nothing else then:

As a government adopts an expansionary fiscal policy:

In an open economy with fixed exchange rates, a contractionary fiscal policy:

If a country maintains a fixed exchange rate by intervening in the foreign exchange market with no other actions by the central bank then it does not have a _____ policy.

A decrease in interest rates would lead a central bank to buy foreign exchange if it wanted to keep the exchange rate from changing.

An expansionary fiscal policy in an open economy with freely mobile capital and fixed exchange rates is more effective in changing equilibrium output when compared to a closed economy.

Introduction: An Overview of the World Economy

Why Countries Trade

Comparative Advantage and the Production Possibilities Frontier

Factor Endowments and the Commodity Composition of Trade

Intra-Industry Trade

The Firm in the World Economy

International Factor Movements

Tariffs

Nontariff Distortions to Trade

International Trade Policy

Regional Economic Arrangements

International Trade and Economic Growth

National Income Accounting and the Balance of Payments

Exchange Rates and Their Determination: A Basic Model

Money, Interest Rates, and the Exchange Rate

Open Economy Macroeconomics

Macroeconomic Policy and Floating Exchange Rates

International Monetary Arrangements

Capital Flows and the Developing Countries

Filters

Exam 18: Fixed Exchange Rates and Currency Unions

The buying of foreign exchange by the central bank causes the domestic money supply to fall.

A contractionary fiscal policy is not very effective when a country adopts a fixed exchange rate.

The Euro began circulating as a currency for all economic transactions in:

Which of the following is the term that refers to the buying and selling of foreign exchange by a central bank?

Show how a central bank fixes the exchange rate in the face of a rising domestic interest rate.

Exchange controls tend to create surpluses of foreign exchange that are difficult for the government to dispose of.

Under a fixed exchange rate system, monetary policy is very effective in achieving internal balance.

Under a currency board system, the central bank holds no domestic currency.

A central bank could buy foreign exchange forever but it cannot sell foreign exchange forever.

Which of the following is not one of the effects of a contractionary fiscal policy?

An expansionary fiscal policy:

Under fixed exchange rates, when is monetary policy inconsistent with both internal and external balance?

Under a fixed exchange rate system and freely flowing capital:

Internal balance is always the same thing as external balance.

If a central bank intervenes in the foreign exchange market and does nothing else then:

As a government adopts an expansionary fiscal policy:

In an open economy with fixed exchange rates, a contractionary fiscal policy:

If a country maintains a fixed exchange rate by intervening in the foreign exchange market with no other actions by the central bank then it does not have a _____ policy.

A decrease in interest rates would lead a central bank to buy foreign exchange if it wanted to keep the exchange rate from changing.

An expansionary fiscal policy in an open economy with freely mobile capital and fixed exchange rates is more effective in changing equilibrium output when compared to a closed economy.

Introduction: An Overview of the World Economy

Why Countries Trade

Comparative Advantage and the Production Possibilities Frontier

Factor Endowments and the Commodity Composition of Trade

Intra-Industry Trade

The Firm in the World Economy

International Factor Movements

Tariffs

Nontariff Distortions to Trade

International Trade Policy

Regional Economic Arrangements

International Trade and Economic Growth

National Income Accounting and the Balance of Payments

Exchange Rates and Their Determination: A Basic Model

Money, Interest Rates, and the Exchange Rate

Open Economy Macroeconomics

Macroeconomic Policy and Floating Exchange Rates

International Monetary Arrangements

Capital Flows and the Developing Countries

Filters