Question 1

The term for an exchange rate system where the currency is inconvertible is:

Accepted Answer

A)  the gold standard. 
B)  exchange controls. 
C)  domestic price controls. 
D)  a verbatim currency system. 
E)  a variable currency system. 
A)  the gold standard. 
B)  exchange controls. 
C)  domestic price controls. 
D)  a verbatim currency system. 
E)  a variable currency system.

Question 2

Suppose that a country has problems with inflation and a current account deficit. Describe why the policies needed to deal with internal and external balance are consistent or not.

Accepted Answer

The policies needed to deal with interna

Question 3

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

Accepted Answer

A)  interest rates to rise and an inflow of foreign capital causing the government to intervene and buy foreign currency. 
B)  interest rates to fall and an outflow of foreign capital causing the government to intervene and sell foreign currency. 
C)  interest rates to rise and an outflow of foreign capital causing the government to intervene and sell foreign currency. 
D)  interest rates to fall and an outflow of foreign capital causing the government to intervene and buy foreign currency. 
E)  interest rates do not change and an inflow of foreign capital causes the government to intervene and buy foreign currency. 
A)  interest rates to rise and an inflow of foreign capital causing the government to intervene and buy foreign currency. 
B)  interest rates to fall and an outflow of foreign capital causing the government to intervene and sell foreign currency. 
C)  interest rates to rise and an outflow of foreign capital causing the government to intervene and sell foreign currency. 
D)  interest rates to fall and an outflow of foreign capital causing the government to intervene and buy foreign currency. 
E)  interest rates do not change and an inflow of foreign capital causes the government to intervene and buy foreign currency.

Question 4

Offsetting the effects of intervention on the money supply is known as sterilization.

Accepted Answer

A) True 
 B)False

Question 5

If the supply of foreign exchange decreased, the central bank would have to buy foreign exchange to keep the exchange rate fixed.

Accepted Answer

A) True 
 B)False

Question 6

Capital outflows make it easier to keep the exchange rate fixed while capital inflows do the reverse.

Accepted Answer

A) True 
 B)False

Question 7

An inconvertible currency is one that cannot by freely traded for another currency.

Accepted Answer

A) True 
 B)False

Question 8

With exchange controls, a shortage of foreign exchange may require the government to:

Accepted Answer

A)  devalue the currency. 
B)  adopt restrictive macroeconomic policies. 
C)  ration available foreign exchange among its competing uses. 
D)  All of the above. 
E)  None of the above 
A)  devalue the currency. 
B)  adopt restrictive macroeconomic policies. 
C)  ration available foreign exchange among its competing uses. 
D)  All of the above. 
E)  None of the above

Question 9

Intervention is defined as the buying and selling of foreign exchange by the central bank.

Accepted Answer

A) True 
 B)False

Question 10

In an open economy with fixed exchange rates, an expansionary 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)  None of the above 
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)  None of the above

Question 11

Show the effect of an expansionary fiscal policy on the economy when exchange rates are fixed.
10 List and explain the various types of monetary efficiency gains.

Accepted Answer

An expansionary fiscal policy involves i

Question 12

Sterilization and intervention can create a situation where fiscal policy is not effective in achieving internal balance.

Accepted Answer

A) True 
 B)False

Question 13

A currency union is a good idea as long as the monetary efficiency _____ are larger than the economic stability _____.

Accepted Answer

A)  gains, losses 
B)  losses, gains 
C)  costs, benefits 
D)  costs, losses 
E)  the marginal costs, marginal benefits 
A)  gains, losses 
B)  losses, gains 
C)  costs, benefits 
D)  costs, losses 
E)  the marginal costs, marginal benefits

Question 14

Under a fixed exchange rate system, monetary policy can only be used to balance the supply and demand for foreign exchange.

Accepted Answer

A) True 
 B)False

Question 15

If aggregate demand is increasing rapidly, then the central bank may need to sell foreign exchange. Show why this statement is true.

Accepted Answer

The statement "If aggregate demand is in

Question 16

The benefits of a currency union include the additional level of economic stability provided by the union.

Accepted Answer

A) True 
 B)False

Question 17

If total outflows of foreign exchange exceed total inflows of foreign exchange at the current fixed exchange rate, the government would need to intervene and:

Accepted Answer

A)  buy foreign exchange to maintain the exchange rate. 
B)  sell foreign exchange to maintain the exchange rate. 
C)  devalue the country's currency. 
D)  conduct an expansionary monetary policy. 
E)  conduct an expansionary fiscal policy. 
A)  buy foreign exchange to maintain the exchange rate. 
B)  sell foreign exchange to maintain the exchange rate. 
C)  devalue the country's currency. 
D)  conduct an expansionary monetary policy. 
E)  conduct an expansionary fiscal policy.

Question 18

Which of the following countries is now using the U.S. dollar as a currency for both domestic and international transactions?

Accepted Answer

A)  Canada 
B)  Argentina 
C)  Mexico 
D)  El Salvador 
E)  the Philippines 
A)  Canada 
B)  Argentina 
C)  Mexico 
D)  El Salvador 
E)  the Philippines

Question 19

When a country intervenes in the foreign exchange market by selling foreign exchange, the domestic money supply declines.

Accepted Answer

A) True 
 B)False

Question 20

If the demand for foreign exchange increases then the central bank would have to sell foreign exchange to keep the value of the currency fixed.

Accepted Answer

A) True 
 B)False

The term for an exchange rate system where the currency is inconvertible is:

Suppose that a country has problems with inflation and a current account deficit. Describe why the policies needed to deal with internal and external balance are consistent or not.

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

Offsetting the effects of intervention on the money supply is known as sterilization.

If the supply of foreign exchange decreased, the central bank would have to buy foreign exchange to keep the exchange rate fixed.

Capital outflows make it easier to keep the exchange rate fixed while capital inflows do the reverse.

An inconvertible currency is one that cannot by freely traded for another currency.

With exchange controls, a shortage of foreign exchange may require the government to:

Intervention is defined as the buying and selling of foreign exchange by the central bank.

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

Show the effect of an expansionary fiscal policy on the economy when exchange rates are fixed. 10 List and explain the various types of monetary efficiency gains.

Sterilization and intervention can create a situation where fiscal policy is not effective in achieving internal balance.

A currency union is a good idea as long as the monetary efficiency _ are larger than the economic stability _.

Under a fixed exchange rate system, monetary policy can only be used to balance the supply and demand for foreign exchange.

If aggregate demand is increasing rapidly, then the central bank may need to sell foreign exchange. Show why this statement is true.

The benefits of a currency union include the additional level of economic stability provided by the union.

If total outflows of foreign exchange exceed total inflows of foreign exchange at the current fixed exchange rate, the government would need to intervene and:

Which of the following countries is now using the U.S. dollar as a currency for both domestic and international transactions?

When a country intervenes in the foreign exchange market by selling foreign exchange, the domestic money supply declines.

If the demand for foreign exchange increases then the central bank would have to sell foreign exchange to keep the value of the currency fixed.

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 term for an exchange rate system where the currency is inconvertible is:

Suppose that a country has problems with inflation and a current account deficit. Describe why the policies needed to deal with internal and external balance are consistent or not.

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

Offsetting the effects of intervention on the money supply is known as sterilization.

If the supply of foreign exchange decreased, the central bank would have to buy foreign exchange to keep the exchange rate fixed.

Capital outflows make it easier to keep the exchange rate fixed while capital inflows do the reverse.

An inconvertible currency is one that cannot by freely traded for another currency.

With exchange controls, a shortage of foreign exchange may require the government to:

Intervention is defined as the buying and selling of foreign exchange by the central bank.

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

Show the effect of an expansionary fiscal policy on the economy when exchange rates are fixed. 10 List and explain the various types of monetary efficiency gains.

Sterilization and intervention can create a situation where fiscal policy is not effective in achieving internal balance.

A currency union is a good idea as long as the monetary efficiency _____ are larger than the economic stability _____.

Under a fixed exchange rate system, monetary policy can only be used to balance the supply and demand for foreign exchange.

If aggregate demand is increasing rapidly, then the central bank may need to sell foreign exchange. Show why this statement is true.

The benefits of a currency union include the additional level of economic stability provided by the union.

If total outflows of foreign exchange exceed total inflows of foreign exchange at the current fixed exchange rate, the government would need to intervene and:

Which of the following countries is now using the U.S. dollar as a currency for both domestic and international transactions?

When a country intervenes in the foreign exchange market by selling foreign exchange, the domestic money supply declines.

If the demand for foreign exchange increases then the central bank would have to sell foreign exchange to keep the value of the currency fixed.

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

A currency union is a good idea as long as the monetary efficiency _ are larger than the economic stability _.