Question 1

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

Accepted Answer

A)  Fiscal policy can affect output, employment and international reserves at the same time. 
B)  Fiscal policy can affect only employment. 
C)  Fiscal policy can affect only international reserves. 
D)  Fiscal policy can affect only output and employment. 
E)  Fiscal employment can affect only output and international reserves. 
A)  Fiscal policy can affect output, employment and international reserves at the same time. 
B)  Fiscal policy can affect only employment. 
C)  Fiscal policy can affect only international reserves. 
D)  Fiscal policy can affect only output and employment. 
E)  Fiscal employment can affect only output and international reserves.

Question 2

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

Accepted Answer

Fixed rates continue to be important for

Question 3

Use a figure to illustrate the ineffectiveness of monetary policy to spur on an economy under a fixed exchange rate.

Accepted Answer

@#IMG-DLM& The initial equilibrium rests at point

Question 4

Please draw a figure illustrating the actions the central bank must take to maintain a fixed exchange rate following an increase in output.

Accepted Answer

The answer of Please draw a figure illustrating the actions...

Question 5

Which one of the following statements is the most accurate?

Accepted Answer

A)  Appreciation is a rise in E when the exchange rate floats while revaluation is a fall in E when the exchange rate is fixed. 
B)  Appreciation is a fall in E when the exchange rate floats while revaluation is a fall in E when the exchange rate is fixed. 
C)  Appreciation is a fall in E when the exchange rate is fixed while revaluation is a fall in E when the exchange rate is flexible. 
D)  Appreciation is a fall in E when the exchange rate floats while revaluation is a rise in E when the exchange rate is fixed. 
E)  Appreciation is a rise in E when the exchange rate floats while revaluation is a rise in E when the exchange rate is fixed. 
A)  Appreciation is a rise in E when the exchange rate floats while revaluation is a fall in E when the exchange rate is fixed. 
B)  Appreciation is a fall in E when the exchange rate floats while revaluation is a fall in E when the exchange rate is fixed. 
C)  Appreciation is a fall in E when the exchange rate is fixed while revaluation is a fall in E when the exchange rate is flexible. 
D)  Appreciation is a fall in E when the exchange rate floats while revaluation is a rise in E when the exchange rate is fixed. 
E)  Appreciation is a rise in E when the exchange rate floats while revaluation is a rise in E when the exchange rate is fixed.

Question 6

Balance of payments crises under fixed exchange rates occur because of

Accepted Answer

A)  government policies that are inconsistent with fixed exchange rates. 
B)  punitive currency wars. 
C)  global inflation and trade imbalances due to war. 
D)  excessive exports and imports that overload the global system. 
E)  monotonic expansion in global currency volume. 
A)  government policies that are inconsistent with fixed exchange rates. 
B)  punitive currency wars. 
C)  global inflation and trade imbalances due to war. 
D)  excessive exports and imports that overload the global system. 
E)  monotonic expansion in global currency volume.

Question 7

Under fixed exchange rate, 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 8

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 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

Please define and give an example of sterilized foreign exchange intervention.

Accepted Answer

Sterilized foreign exchange intervention

Question 11

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 12

Please show how the 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

Question 13

Which of the following best describes a deliberate government decision to lower the exchange rate, E?

Accepted Answer

A)  appreciation 
B)  depreciation 
C)  revaluation 
D)  devaluation 
E)  accumulation 
A)  appreciation 
B)  depreciation 
C)  revaluation 
D)  devaluation 
E)  accumulation

Question 14

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.

Question 15

Briefly discuss the main advantage of the bimetallic standard over the gold standard.

Accepted Answer

The advantage of bimetallism was that it

Question 16

Capital flight

Accepted Answer

A)  increases reserves. 
B)  is never associated with the expectation of devaluation. 
C)  may undo expected devaluation. 
D)  reduces losses during a devaluation scare. 
E)  decreases reserves and may induce devaluation. 
A)  increases reserves. 
B)  is never associated with the expectation of devaluation. 
C)  may undo expected devaluation. 
D)  reduces losses during a devaluation scare. 
E)  decreases reserves and may induce devaluation.

Question 17

Describe some of the causes of the Brazilian 1998-1999 balance of payments crisis.

Accepted Answer

After a decade of rampant inflation, Bra

Question 18

Use a figure to explain how a balance of payments crisis and its hand in capital flight.

Accepted Answer

@#IMG-DLM& Suppose the foreign exchange market exp

Question 19

A balance of payments crisis is best described as

Accepted Answer

A)  a sharp change in interest rates sparked by a change in expectations about the level of imports. 
B)  a sharp change in foreign reserves sparked by a change in expectations about the future exchange rate. 
C)  a sharp change in interest rates sparked by a change in expectations about the level of exports. 
D)  a sharp change in foreign reserves sparked by a change in expectations about the level of imports. 
E)  a sharp change in foreign reserves sparked by a change in expectations about domestic production. 
A)  a sharp change in interest rates sparked by a change in expectations about the level of imports. 
B)  a sharp change in foreign reserves sparked by a change in expectations about the future exchange rate. 
C)  a sharp change in interest rates sparked by a change in expectations about the level of exports. 
D)  a sharp change in foreign reserves sparked by a change in expectations about the level of imports. 
E)  a sharp change in foreign reserves sparked by a change in expectations about domestic production.

Question 20

What is the expected dollar rate of return on dollar deposits with today's exchange rate at $1.10 per euro, next year's expected exchange rate at $1.165 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%?

Accepted Answer

A)  10% 
B)  11% 
C)  -1% 
D)  0% 
E)  5% 
A)  10% 
B)  11% 
C)  -1% 
D)  0% 
E)  5%

Exam 18: Fixed Exchange Rates and Foreign Exchange Intervention

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

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

Use a figure to illustrate the ineffectiveness of monetary policy to spur on an economy under a fixed exchange rate.

Please draw a figure illustrating the actions the central bank must take to maintain a fixed exchange rate following an increase in output.

Which one of the following statements is the most accurate?

Balance of payments crises under fixed exchange rates occur because of

Under fixed exchange rate, which one of the following statements is the most accurate?

Perfect asset substitutability is the assumption that

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?

Please define and give an example of sterilized foreign exchange intervention.

Which one of the following statements is the most accurate?

Please show how the 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 of the following best describes a deliberate government decision to lower the exchange rate, E?

Which one of the following statements is the most accurate?

Briefly discuss the main advantage of the bimetallic standard over the gold standard.

Capital flight

Describe some of the causes of the Brazilian 1998-1999 balance of payments crisis.

Use a figure to explain how a balance of payments crisis and its hand in capital flight.

A balance of payments crisis is best described as

What is the expected dollar rate of return on dollar deposits with today's exchange rate at $1.10 per euro, next year's expected exchange rate at $1.165 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%?

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

Optimum Currency Areas and the European Experience

Financial Globalization: Opportunity and Crisis

Developing Countries: Growth, Crisis, and Reform

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