Question 1

Which one of the following statements is the MOST accurate?

Accepted Answer

A) Revaluation reflects an outcome of government actions and market forces acting together while appreciation reflects a deliberate government decision. 
B) Revaluation reflects a deliberate government decision while appreciation is an outcome of government actions and market forces acting together. 
C) Revaluation reflects a deliberate government decision while appreciation is an outcome of government actions. 
D) Revaluation and appreciation have the same meaning and the same causes. 
E) Appreciation reflects a deliberate government decision while revaluation is an outcome of government actions and market forces acting together. 
A) Revaluation reflects an outcome of government actions and market forces acting together while appreciation reflects a deliberate government decision. 
B) Revaluation reflects a deliberate government decision while appreciation is an outcome of government actions and market forces acting together. 
C) Revaluation reflects a deliberate government decision while appreciation is an outcome of government actions. 
D) Revaluation and appreciation have the same meaning and the same causes. 
E) Appreciation reflects a deliberate government decision while revaluation is an outcome of government actions and market forces acting together. B

Question 2

Explain how a country whose currency is the reserve currency can use monetary policy for macroeconomic stabilization.In particular,explain the result if that country doubled its domestic money supply.

Accepted Answer

The immediate result of the doubling of the money supply in the reserve currency's country will be able to increase the exchange rate between the reserve currency and all other currencies.However,all other countries must fix their exchange rate to the reserve currency,so they will purchase the reserve currency and hold it as official international reserves (thus increase their own money supply)until the exchange rate has returned to normal.Thus,the reserve country has the power to affect its own economy and all other countries must adjust in response.

Question 3

Which one of the following statements is most correct?

Accepted Answer

A) If central banks are not sterilizing and the home country has a balance of payments surplus,any associated increase in a foreign central bank's claims on the home country implies a decreased foreign money supply. 
B) If central banks are not sterilizing and the home country has a balance of payments surplus,any associated decrease in a foreign central bank's claims on the home country implies a decreased foreign money demand. 
C) If central banks are not sterilizing and the home country has a balance of payments surplus,any associated decrease in a foreign central bank's claims on the home country implies a decreased foreign money supply. 
D) If central banks are not sterilizing and the home country has a balance of payments shortage,any associated decrease in a foreign central bank's claims on the home country implies a decreased foreign money supply. 
E) If central banks are not sterilizing and the home country has a balance of payments shortage,any associated decrease in a foreign central bank's claims on the home country implies an increased domestic money supply. 
A) If central banks are not sterilizing and the home country has a balance of payments surplus,any associated increase in a foreign central bank's claims on the home country implies a decreased foreign money supply. 
B) If central banks are not sterilizing and the home country has a balance of payments surplus,any associated decrease in a foreign central bank's claims on the home country implies a decreased foreign money demand. 
C) If central banks are not sterilizing and the home country has a balance of payments surplus,any associated decrease in a foreign central bank's claims on the home country implies a decreased foreign money supply. 
D) If central banks are not sterilizing and the home country has a balance of payments shortage,any associated decrease in a foreign central bank's claims on the home country implies a decreased foreign money supply. 
E) If central banks are not sterilizing and the home country has a balance of payments shortage,any associated decrease in a foreign central bank's claims on the home country implies an increased domestic money supply. C

Question 4

Perfect asset substitutability is the assumption that

Accepted Answer

A) the foreign exchange market is in equilibrium only when expected returns on domestic assets are greater than returns on foreign currency bonds. 
B) the foreign exchange market is in equilibrium only when expected returns on foreign currency bonds are greater than returns on domestic assets. 
C) the foreign exchange market is in equilibrium only when expected returns on all assets are negative. 
D) the foreign exchange market is in equilibrium only when expected returns on domestic assets are equal to returns on foreign currency bonds. 
E) the foreign exchange market is in equilibrium only when domestic assets are risk-free. 
A) the foreign exchange market is in equilibrium only when expected returns on domestic assets are greater than returns on foreign currency bonds. 
B) the foreign exchange market is in equilibrium only when expected returns on foreign currency bonds are greater than returns on domestic assets. 
C) the foreign exchange market is in equilibrium only when expected returns on all assets are negative. 
D) the foreign exchange market is in equilibrium only when expected returns on domestic assets are equal to returns on foreign currency bonds. 
E) the foreign exchange market is in equilibrium only when domestic assets are risk-free.

Question 5

If assets are imperfect substitutes,then a decrease in the amount of domestic currency bonds held by the public will ________ the risk premium and ________ the amount of domestic currency bonds held by the central bank.

Accepted Answer

A) decrease;leave unchanged 
B) increase;decrease 
C) increase;increase 
D) decrease;decrease 
E) leave unchanged;decrease 
A) decrease;leave unchanged 
B) increase;decrease 
C) increase;increase 
D) decrease;decrease 
E) leave unchanged;decrease

Question 6

Why is it important to understand fixed exchange rates in the modern global economy?

Accepted Answer

Fixed rates continue to be important for

Question 7

List the drawbacks of the gold standard.

Accepted Answer

1.Undesirable constraints on the use of

Question 8

This question concerns the mechanism of a reserve currency standard.
Two countries,X and Y,have two currencies,x and y,fixed to the reserve currency,the U.S.dollar.Suppose the exchange rate between x and the U.S.dollar is 3x per dollar.Suppose the exchange rate between y and the U.S.dollar is 5y per dollar.Explain (using numbers)the mechanism if the x-y exchange rate was 0.8 x per y.

Accepted Answer

At this exchange rate,an investor can ma

Question 9

Under the gold standard,if the dollar price of gold is pegged at $35 per ounce and the euro price of gold is pegged at 12 euro per ounce,what is the dollar/euro exchange rate?

Accepted Answer

The dollar/euro exchange rate

Question 10

Under fixed exchange rates,which one of the following statements is the MOST accurate?

Accepted Answer

A) Devaluation causes a reduction of the money supply. 
B) Devaluation has no effect on the stock of money. 
C) Devaluation causes an expansion of the money supply. 
D) Devaluation causes a reduction in output. 
E) Devaluation causes a reduction in official reserves. 
A) Devaluation causes a reduction of the money supply. 
B) Devaluation has no effect on the stock of money. 
C) Devaluation causes an expansion of the money supply. 
D) Devaluation causes a reduction in output. 
E) Devaluation causes a reduction in official reserves.

Question 11

From the Civil War up to 1914,the United States adhered to a

Accepted Answer

A) gold standard. 
B) silver standard. 
C) bimetallic standard. 
D) bronze standard. 
E) copper standard. 
A) gold standard. 
B) silver standard. 
C) bimetallic standard. 
D) bronze standard. 
E) copper standard.

Question 12

Describe the mechanism which would take place if the Bank of England decides to increase its money supply by purchasing domestic assets under the gold standard.

Accepted Answer

The increase in Britain's money supply w

Question 13

Use a figure to explain the potential effectiveness of fiscal policy to spur on the economy under a fixed exchange rate.

Accepted Answer

@#IMG-DLM& 
With an aim toward increasing output,t

Question 14

Under fixed exchange rates,which one of the following statements is the MOST accurate?

Accepted Answer

A) Devaluation causes a decrease in output,a decrease in official reserves,and a contraction of the money supply. 
B) Devaluation causes a rise in output,a rise in official reserves,and an expansion of the money supply. 
C) Devaluation causes a rise in output and a rise in official reserves. 
D) Devaluation causes a rise in output and an expansion of the money supply. 
E) Devaluation causes a rise in official reserves,and an expansion of the money supply. 
A) Devaluation causes a decrease in output,a decrease in official reserves,and a contraction of the money supply. 
B) Devaluation causes a rise in output,a rise in official reserves,and an expansion of the money supply. 
C) Devaluation causes a rise in output and a rise in official reserves. 
D) Devaluation causes a rise in output and an expansion of the money supply. 
E) Devaluation causes a rise in official reserves,and an expansion of the money supply.

Question 15

Which one of the following statements is the MOST accurate?

Accepted Answer

A) Under a fixed exchange rate,central bank monetary tools are powerless to affect the economy's money supply. 
B) Under a flexible exchange rate,central bank monetary tools are powerless to affect the economy's money supply or its output. 
C) Under a fixed exchange rate,fiscal policy tools are powerless to affect the economy's money supply or its output. 
D) Under a fixed exchange rate,central bank monetary tools are powerless to affect the economy's money supply or its output. 
E) Under a dirty float exchange rate,central bank monetary tools are powerless to affect the economy's money supply or its output. 
A) Under a fixed exchange rate,central bank monetary tools are powerless to affect the economy's money supply. 
B) Under a flexible exchange rate,central bank monetary tools are powerless to affect the economy's money supply or its output. 
C) Under a fixed exchange rate,fiscal policy tools are powerless to affect the economy's money supply or its output. 
D) Under a fixed exchange rate,central bank monetary tools are powerless to affect the economy's money supply or its output. 
E) Under a dirty float exchange rate,central bank monetary tools are powerless to affect the economy's money supply or its output.

Question 16

If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant,can it still keep the exchange rate fixed at   ? Please explain.

Accepted Answer

No,the rise in output leads to an excess

Question 17

Industrialized countries typically ________ their floating exchange rates.Developing countries often ________ their floating exchange rates.

Accepted Answer

A) manage;peg 
B) peg;manage 
C) allow markets to determine;fix 
D) fix;manage 
E) fix;allow markets to determine 
A) manage;peg 
B) peg;manage 
C) allow markets to determine;fix 
D) fix;manage 
E) fix;allow markets to determine

Question 18

Currency crises may result from

Accepted Answer

A) central bank balance sheets with higher liabilities than assets. 
B) political upheaval leading to lowering exports. 
C) a reconfiguration of central bank balance sheets. 
D) speculative attacks on the currency or central banks purchasing excessive amounts of government bonds. 
E) depreciation of foreign reserves. 
A) central bank balance sheets with higher liabilities than assets. 
B) political upheaval leading to lowering exports. 
C) a reconfiguration of central bank balance sheets. 
D) speculative attacks on the currency or central banks purchasing excessive amounts of government bonds. 
E) depreciation of foreign reserves.

Question 19

From the figure below,please provide an explanation for the large decline in the growth rate of international reserves held by developing countries in the 2008-2009 period.

Accepted Answer

The growth of global capital markets has

Question 20

Which one of the following statements is the MOST accurate?

Accepted Answer

A) A devaluation occurs when the central bank lowers the domestic currency price of foreign currency,E,and a revaluation occurs when the central bank raises E. 
B) A devaluation occurs when the central bank raises the domestic currency price of foreign currency,E,and a revaluation occurs when the central bank lowers E. 
C) Devaluation occurs when the domestic currency price of foreign currency,E,raises and a revaluation occurs when E is lowered. 
D) A devaluation occurs when the central bank of the foreign country raises the domestic currency price of foreign currency,E,and a revaluation occurs when the central bank of the foreign country lowers E. 
E) A devaluation occurs when the central bank raises the foreign currency price of domestic currency,E,and a revaluation occurs when the central bank lowers E. 
A) A devaluation occurs when the central bank lowers the domestic currency price of foreign currency,E,and a revaluation occurs when the central bank raises E. 
B) A devaluation occurs when the central bank raises the domestic currency price of foreign currency,E,and a revaluation occurs when the central bank lowers E. 
C) Devaluation occurs when the domestic currency price of foreign currency,E,raises and a revaluation occurs when E is lowered. 
D) A devaluation occurs when the central bank of the foreign country raises the domestic currency price of foreign currency,E,and a revaluation occurs when the central bank of the foreign country lowers E. 
E) A devaluation occurs when the central bank raises the foreign currency price of domestic currency,E,and a revaluation occurs when the central bank lowers E.

Exam 18: Fixed Exchange Rates and Foreign Exchange Intervention

Which one of the following statements is the MOST accurate?

Explain how a country whose currency is the reserve currency can use monetary policy for macroeconomic stabilization.In particular,explain the result if that country doubled its domestic money supply.

Which one of the following statements is most correct?

Perfect asset substitutability is the assumption that

If assets are imperfect substitutes,then a decrease in the amount of domestic currency bonds held by the public will ________ the risk premium and ________ the amount of domestic currency bonds held by the central bank.

Why is it important to understand fixed exchange rates in the modern global economy?

List the drawbacks of the gold standard.

Under the gold standard,if the dollar price of gold is pegged at $35 per ounce and the euro price of gold is pegged at 12 euro per ounce,what is the dollar/euro exchange rate?

Under fixed exchange rates,which one of the following statements is the MOST accurate?

From the Civil War up to 1914,the United States adhered to a

Describe the mechanism which would take place if the Bank of England decides to increase its money supply by purchasing domestic assets under the gold standard.

Use a figure to explain the potential effectiveness of fiscal policy to spur on the economy under a fixed exchange rate.

Under fixed exchange rates,which one of the following statements is the MOST accurate?

Which one of the following statements is the MOST accurate?

If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant,can it still keep the exchange rate fixed at ? Please explain.

Industrialized countries typically ________ their floating exchange rates.Developing countries often ________ their floating exchange rates.

Currency crises may result from

From the figure below,please provide an explanation for the large decline in the growth rate of international reserves held by developing countries in the 2008-2009 period.

Which one of the following statements is the MOST accurate?

Introduction

World Trade: An Overview

Labor Productivity and Comparative Advantage: The Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: An Asset Approach

Money,Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

International Monetary Systems: An Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

If assets are imperfect substitutes,then a decrease in the amount of domestic currency bonds held by the public will the risk premium and the amount of domestic currency bonds held by the central bank.

Industrialized countries typically their floating exchange rates.Developing countries often their floating exchange rates.