Question 1

The expectation of future revaluation causes a balance of payments crisis marked by

Accepted Answer

A)  a sharp rise in reserves and a fall in the home interest rate below the world interest rate. 
B)  a sharp fall in reserves and an even bigger fall in the home interest rate below the world interest rate. 
C)  a sharp fall in reserves and a rise in the home interest rate above the world interest rate. 
D)  a sharp rise in reserves and an even greater rise in the home interest rate above the world interest. 
E)  a sharp fall in reserves and an unchanged home interest rate. 
A)  a sharp rise in reserves and a fall in the home interest rate below the world interest rate. 
B)  a sharp fall in reserves and an even bigger fall in the home interest rate below the world interest rate. 
C)  a sharp fall in reserves and a rise in the home interest rate above the world interest rate. 
D)  a sharp rise in reserves and an even greater rise in the home interest rate above the world interest. 
E)  a sharp fall in reserves and an unchanged home interest rate.

Question 2

Which one of the following statements is the most accurate?

Accepted Answer

A)  Depreciation is a rise in E when the exchange rate is fixed while devaluation is a rise in E when the exchange rate floats. 
B)  Depreciation is a decrease in E when the exchange rate floats while devaluation is a rise in E when the exchange rate is fixed. 
C)  Depreciation is a rise in E when the exchange rate floats while devaluation is a rise in E when the exchange rate is fixed. 
D)  Depreciation is a rise in E when the exchange rate floats while devaluation is a decrease in E when the exchange rate is fixed. 
E)  Depreciation is a fall in E when the exchange rate is fixed while devaluation is a fall in E when the exchange rate floats. 
A)  Depreciation is a rise in E when the exchange rate is fixed while devaluation is a rise in E when the exchange rate floats. 
B)  Depreciation is a decrease in E when the exchange rate floats while devaluation is a rise in E when the exchange rate is fixed. 
C)  Depreciation is a rise in E when the exchange rate floats while devaluation is a rise in E when the exchange rate is fixed. 
D)  Depreciation is a rise in E when the exchange rate floats while devaluation is a decrease in E when the exchange rate is fixed. 
E)  Depreciation is a fall in E when the exchange rate is fixed while devaluation is a fall in E when the exchange rate floats.

Question 3

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 4

Central banks often intervene in currency markets. This activity is called

Accepted Answer

A)  managed floating. 
B)  fixing exchange rates. 
C)  currency warfare. 
D)  super-pegging. 
E)  flexible floating. 
A)  managed floating. 
B)  fixing exchange rates. 
C)  currency warfare. 
D)  super-pegging. 
E)  flexible floating.

Question 5

Which one of the following statements is the most accurate?

Accepted Answer

A)  Fiscal policy has the same effect on output under fixed and flexible exchange rate regimes. 
B)  Fiscal policy affects output more under fixed than under flexible exchange rate regimes. 
C)  Fiscal policy affects output less under fixed than under flexible exchange rate regimes. 
D)  Fiscal policy cannot affect output under fixed exchange rate but does affect output under flexible exchange rate regimes. 
E)  Fiscal policy can affect output under fixed exchange rate but does not affect output under flexible exchange rate regimes. 
A)  Fiscal policy has the same effect on output under fixed and flexible exchange rate regimes. 
B)  Fiscal policy affects output more under fixed than under flexible exchange rate regimes. 
C)  Fiscal policy affects output less under fixed than under flexible exchange rate regimes. 
D)  Fiscal policy cannot affect output under fixed exchange rate but does affect output under flexible exchange rate regimes. 
E)  Fiscal policy can affect output under fixed exchange rate but does not affect output under flexible exchange rate regimes.

Question 6

A balance of payments crises under fixed exchange rates occurs when

Accepted Answer

A)  a country runs out of foreign reserves. 
B)  a country is in a liquidity trap. 
C)  exports and imports expand beyond some point. 
D)  marginal returns on foreign exchange investments approach zero. 
E)  forward currency markets undergo high volatility. 
A)  a country runs out of foreign reserves. 
B)  a country is in a liquidity trap. 
C)  exports and imports expand beyond some point. 
D)  marginal returns on foreign exchange investments approach zero. 
E)  forward currency markets undergo high volatility.

Question 7

Briefly describe two systems for fixing the exchange rates of all currencies against each other and the time periods in which they were used.

Accepted Answer

The first is to single cut one country's

Question 8

Which one of the following statements is the most accurate?

Accepted Answer

A)  Fiscal policy has the same effect on employment under fixed and flexible exchange rate regimes. 
B)  Fiscal policy affects employment less under fixed than under flexible exchange rate regimes. 
C)  Fiscal policy affects employment more under fixed than under flexible exchange rate regimes. 
D)  Fiscal policy cannot affect employment under fixed exchange rate but does affect output under flexible exchange rate regimes. 
E)  Fiscal policy can affect employment under fixed exchange rate regimes, but does not affect output under flexible exchange rate regimes. 
A)  Fiscal policy has the same effect on employment under fixed and flexible exchange rate regimes. 
B)  Fiscal policy affects employment less under fixed than under flexible exchange rate regimes. 
C)  Fiscal policy affects employment more under fixed than under flexible exchange rate regimes. 
D)  Fiscal policy cannot affect employment under fixed exchange rate but does affect output under flexible exchange rate regimes. 
E)  Fiscal policy can affect employment under fixed exchange rate regimes, but does not affect output under flexible exchange rate regimes.

Question 9

From 1837 and up until the Civil War, 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 10

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 11

A balance sheet for the central bank of Pecunia is shown below:
Central Bank Balance Sheet
Assets Liabilities
Foreign assets $1,000 Deposits held by private banks $500
Domestic assets $1,500 Currency in circulation $2,000
Please write the new balance sheet if the bank sells $100 worth of foreign bonds for domestic currency.

Accepted Answer

Central Bank Balance Sheet
Ass

Question 12

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 Eo? Please explain with the aid of a figure.

Accepted Answer

@#IMG-DLM& No, the rise in output leads to an exce

Question 13

Assume that initially, the risk premium, ρ = 0 and that the domestic and foreign interest rates are given by R = .06, R* = .05. Suppose that the risk premium depends linearly on the difference between domestic government debt, B, and domestic assets of the central bank, A, i.e.
ρ = ρ(B-A)
How much will the central bank have to reduce domestic assets A s.t. the domestic interest rate will increase by (a) 1% (b) 4%?

Accepted Answer

(a) ρ = .01 = ρ_o^{(B - [A}^o^-^Δ^A]) ΔA =

Question 14

Please describe in detail a self-fulfilling currency crisis.

Accepted Answer

Consider an economy in which domestic co

Question 15

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. Please explain (using numbers) the mechanism if the x-y exchange rate was 0.5 x per y.

Accepted Answer

At this exchange rate, an investor can m

Question 16

Does the signalling effect of foreign exchange intervention support or refute the claim that assets cannot be perfect substitutes if sterilized intervention is going to have any effect? Please explain.

Accepted Answer

The signalling effect refutes the claim.

Question 17

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 Eo? Please explain.

Accepted Answer

No, the rise in output leads to an exces

Question 18

Imperfect asset substitutability assumes:

Accepted Answer

A)  the returns on foreign and domestic currency bonds are the same. 
B)  the returns on foreign and domestic currency are unrelated. 
C)  the returns on foreign and domestic currency are not influenced by risk. 
D)  sterilized intervention proves to be unproductive. 
E)  the returns on foreign and domestic currency are different, but both are influenced by risk. 
A)  the returns on foreign and domestic currency bonds are the same. 
B)  the returns on foreign and domestic currency are unrelated. 
C)  the returns on foreign and domestic currency are not influenced by risk. 
D)  sterilized intervention proves to be unproductive. 
E)  the returns on foreign and domestic currency are different, but both are influenced by risk.

Question 19

What are the factors affecting the demand for foreign currency?

Accepted Answer

Three factors affect the deman

Question 20

In 1999, following the failure of a $40 billion IMF stabilization plan, Brazil

Accepted Answer

A)  was forced to revalue the Real. 
B)  experienced an economic boom. 
C)  was forced to devalue the Real. 
D)  saw its currency become overvalued. 
E)  received another loan from the IMF worth $86 billion. 
A)  was forced to revalue the Real. 
B)  experienced an economic boom. 
C)  was forced to devalue the Real. 
D)  saw its currency become overvalued. 
E)  received another loan from the IMF worth $86 billion.

The expectation of future revaluation causes a balance of payments crisis marked by

Which one of the following statements is the most accurate?

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.

Central banks often intervene in currency markets. This activity is called

Which one of the following statements is the most accurate?

A balance of payments crises under fixed exchange rates occurs when

Briefly describe two systems for fixing the exchange rates of all currencies against each other and the time periods in which they were used.

Which one of the following statements is the most accurate?

From 1837 and up until the Civil War, the United States adhered to a

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

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 E^o? Please explain with the aid of a figure.

Please describe in detail a self-fulfilling currency crisis.

Does the signalling effect of foreign exchange intervention support or refute the claim that assets cannot be perfect substitutes if sterilized intervention is going to have any effect? Please explain.

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 E^o? Please explain.

Imperfect asset substitutability assumes:

What are the factors affecting the demand for foreign currency?

In 1999, following the failure of a $40 billion IMF stabilization plan, Brazil

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

Filters

Exam 18: Fixed Exchange Rates and Foreign Exchange Intervention

The expectation of future revaluation causes a balance of payments crisis marked by

Which one of the following statements is the most accurate?

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.

Central banks often intervene in currency markets. This activity is called

Which one of the following statements is the most accurate?

A balance of payments crises under fixed exchange rates occurs when

Briefly describe two systems for fixing the exchange rates of all currencies against each other and the time periods in which they were used.

Which one of the following statements is the most accurate?

From 1837 and up until the Civil War, the United States adhered to a

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

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 Eo? Please explain with the aid of a figure.

Please describe in detail a self-fulfilling currency crisis.

Does the signalling effect of foreign exchange intervention support or refute the claim that assets cannot be perfect substitutes if sterilized intervention is going to have any effect? Please explain.

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 Eo? Please explain.

Imperfect asset substitutability assumes:

What are the factors affecting the demand for foreign currency?

In 1999, following the failure of a $40 billion IMF stabilization plan, Brazil

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

Filters

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 E^o? Please explain with the aid of a figure.

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 E^o? Please explain.