Question 1

Carefully explain the costs and benefits of a flexible exchange rate regime.

Accepted Answer

There is less uncertainty for importers and exporters,because the exchange rate does not change,and thus this may facilitate trade.Fixed rates are more likely to have stabilizing rather than destabilizing speculation,as long as the government is committed to the rate.Fixed rates impose price (and monetary)discipline on governments.However,fixed rates mean that nations cannot use monetary policy,and they must also focus policy on external balance as well as internal balance.

Question 2

The following established the conditions under which and European Union member nation could join the currency union:

Accepted Answer

A) The Treaty of Rome 
B) The Single European Act 
C) The Maastricht Treaty 
D) The Treaty of Paris 
A) The Treaty of Rome 
B) The Single European Act 
C) The Maastricht Treaty 
D) The Treaty of Paris C

Question 3

Price discipline is:

Accepted Answer

A) greater under a fixed than under a flexible exchange rate system 
B) greater under a flexible than under a fixed exchange rate system 
C) about the same under a fixed as under a flexible exchange rate system 
D) is unrelated to the type of exchange rate system 
A) greater under a fixed than under a flexible exchange rate system 
B) greater under a flexible than under a fixed exchange rate system 
C) about the same under a fixed as under a flexible exchange rate system 
D) is unrelated to the type of exchange rate system A

Question 4

The open economy trilemma is that:

Accepted Answer

A) fiscal policies,monetary policies,and direct controls cannot manage all macroeconomic problems. 
B) a fixed exchange rate,unrestricted capital flows,and monetary independence cannot all be achieved at the same time. 
C) unrestricted capital flows cannot be achieved when fiscal and monetary policies are being implemented. 
D) monetary shocks,real shocks,and supply shocks all disturb long run macroeconomic equilibrium. 
A) fiscal policies,monetary policies,and direct controls cannot manage all macroeconomic problems. 
B) a fixed exchange rate,unrestricted capital flows,and monetary independence cannot all be achieved at the same time. 
C) unrestricted capital flows cannot be achieved when fiscal and monetary policies are being implemented. 
D) monetary shocks,real shocks,and supply shocks all disturb long run macroeconomic equilibrium.

Question 5

The policy of changing par values by small preannounced amounts at frequent intervals until the equilibrium exchange rate is reached is called:

Accepted Answer

A) crawling peg 
B) adjustable peg 
C) managed float 
D) dirty float 
A) crawling peg 
B) adjustable peg 
C) managed float 
D) dirty float

Question 6

International policy coordination may help avoid

Accepted Answer

A) beggar-thy-neighbor policies 
B) competitive devaluations 
C) retaliatory behavior 
D) all of the above 
A) beggar-thy-neighbor policies 
B) competitive devaluations 
C) retaliatory behavior 
D) all of the above

Question 7

Flexible exchange rates:

Accepted Answer

A) enhance the effectiveness of fiscal policy 
B) reduce the effectiveness of fiscal policy 
C) enhance the effectiveness of monetary policy 
D) reduce the effectiveness of monetary policy 
A) enhance the effectiveness of fiscal policy 
B) reduce the effectiveness of fiscal policy 
C) enhance the effectiveness of monetary policy 
D) reduce the effectiveness of monetary policy

Question 8

Which of the following statements is correct with respect to flexible exchange rates?

Accepted Answer

A) they insulate the domestic economy from external shocks much more than fixed exchange rates 
B) they are particularly attractive to nations subject to large external shocks 
C) they provide less stability to an open economy subject to large internal shocks 
D) all of the above 
A) they insulate the domestic economy from external shocks much more than fixed exchange rates 
B) they are particularly attractive to nations subject to large external shocks 
C) they provide less stability to an open economy subject to large internal shocks 
D) all of the above

Question 9

Most economists believe that under "normal conditions" speculation:

Accepted Answer

A) is stabilizing 
B) is destabilizing 
C) is neither stabilizing nor destabilizing 
D) seldom occurs 
A) is stabilizing 
B) is destabilizing 
C) is neither stabilizing nor destabilizing 
D) seldom occurs

Question 10

Which if the following is not a benefit of participation in the euro currency are

Accepted Answer

A) elimination of the need to exchange currencies 
B) more rapid financial integration 
C) maintenance of independent monetary policy 
D) greater economic discipline 
A) elimination of the need to exchange currencies 
B) more rapid financial integration 
C) maintenance of independent monetary policy 
D) greater economic discipline

Question 11

What is a currency board?

Accepted Answer

Currency boards are the most extreme for

Question 12

If the band of allowed fluctuation under a fixed exchange rate system is made very wide,the system will resemble:

Accepted Answer

A) a flexible exchange rate system 
B) the gold standard 
C) an adjustable peg 
D) a crawling peg 
A) a flexible exchange rate system 
B) the gold standard 
C) an adjustable peg 
D) a crawling peg

Question 13

The European Monetary Union:

Accepted Answer

A) has a common currency 
B) has a single central bank 
C) conducts a common monetary policy 
D) all of the above 
A) has a common currency 
B) has a single central bank 
C) conducts a common monetary policy 
D) all of the above

Question 14

The European Monetary System is or resembles a:

Accepted Answer

A) fixed exchange rate system 
B) a managed exchange rate system 
C) a crawling peg system 
D) a freely flexible exchange rate system 
A) fixed exchange rate system 
B) a managed exchange rate system 
C) a crawling peg system 
D) a freely flexible exchange rate system

Question 15

International macroeconomic policy coordination has become more useful and essential in recent decades because:

Accepted Answer

A) the interdependence among countries has increased 
B) the volume of trade has grown more rapidly than GNP 
C) of the large increase in international capital flows 
D) all of the above 
A) the interdependence among countries has increased 
B) the volume of trade has grown more rapidly than GNP 
C) of the large increase in international capital flows 
D) all of the above

Question 16

What are the advantages of the adoption of the euro as common currency for the euro member nations?

Accepted Answer

Elimination of the need to exchange curr

Question 17

Under a flexible as compared to a fixed exchange rate system:

Accepted Answer

A) a nation can more easily achieve its desired inflation-unemployment tradeoff 
B) it is more difficult for a nation to achieve its desired inflation-unemployment tradeoff 
C) it is more difficult for a nation to achieve internal balance 
D) it is more difficult for a nation to achieve external balance 
A) a nation can more easily achieve its desired inflation-unemployment tradeoff 
B) it is more difficult for a nation to achieve its desired inflation-unemployment tradeoff 
C) it is more difficult for a nation to achieve internal balance 
D) it is more difficult for a nation to achieve external balance

Question 18

Why is a flexible exchange rate system likely to be more efficient that a fixed exchange rate system?

Accepted Answer

It relies on exchange rate adjustments,a

Question 19

The formation of an optimum currency area is more likely to be beneficial:

Accepted Answer

A) the smaller is the mobility of resource among the various nations of the optimum currency area 
B) the smaller the structural similarities of member nations are 
C) the more willing member nations to closely coordinate their fiscal,monetary,and other policies are 
D) all of the above 
A) the smaller is the mobility of resource among the various nations of the optimum currency area 
B) the smaller the structural similarities of member nations are 
C) the more willing member nations to closely coordinate their fiscal,monetary,and other policies are 
D) all of the above

Question 20

The policy of intervention in the foreign exchange market to smooth out short-run fluctuations in exchange rates is called:

Accepted Answer

A) crawling peg 
B) adjustable peg 
C) leaning against the wind 
D) managed float 
A) crawling peg 
B) adjustable peg 
C) leaning against the wind 
D) managed float

Exam 20: Flexible Versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy Coordination

Carefully explain the costs and benefits of a flexible exchange rate regime.

The following established the conditions under which and European Union member nation could join the currency union:

Price discipline is:

The open economy trilemma is that:

The policy of changing par values by small preannounced amounts at frequent intervals until the equilibrium exchange rate is reached is called:

International policy coordination may help avoid

Flexible exchange rates:

Which of the following statements is correct with respect to flexible exchange rates?

Most economists believe that under "normal conditions" speculation:

Which if the following is not a benefit of participation in the euro currency are

What is a currency board?

If the band of allowed fluctuation under a fixed exchange rate system is made very wide,the system will resemble:

The European Monetary Union:

The European Monetary System is or resembles a:

International macroeconomic policy coordination has become more useful and essential in recent decades because:

What are the advantages of the adoption of the euro as common currency for the euro member nations?

Under a flexible as compared to a fixed exchange rate system:

Why is a flexible exchange rate system likely to be more efficient that a fixed exchange rate system?

The formation of an optimum currency area is more likely to be beneficial:

The policy of intervention in the foreign exchange market to smooth out short-run fluctuations in exchange rates is called:

Introduction

The Law of Comparative Advantage

The Standard Theory of International Trade

Demand and Supply, offer Curves, and the Terms of Trade

Factor Endowments and the Heckscher-Ohlin Theory

Economies of Scale, imperfect Competition, and International Trade

Economic Growth and International Trade

Economic Growth and International Trade

Nontariff Trade Barriers and the New Protectionism

Economic Integration: Customs Unions and Free Trade Areas

International Trade and Economic Development

International Resource Movements and Multinational Corporations

Balance of Payments

Foreign Exchange Markets and Exchange Rates

Exchange Rate Determination

The Price Adjustment Mechanism With Flexible and Fixed Exchange

The Income Adjustment Mechanism and Synthesis of Automatic

Open-Economy Macroeconomics: Adjustment Policies

Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply

The International Monetary System: Past,present,and Future

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