Question 1

Explain the essence of the first-generation crisis model.

Accepted Answer

The first-generation crisis model, also

Question 2

Whenever the central bank lends to solvent but illiquid private financial institutions, it does not endanger the peg. Why not?

Accepted Answer

A)  The money demand and supply increase together, so interest rates are not affected, and the purchase of new domestic credit, when repaid, will restore the backing ratio. 
B)  The central bank finances the lending by selling reserves and the backing ratio is lower. 
C)  Private illiquid banks could borrow internationally, if needed, to repay their loans. 
D)  The peg is guaranteed by the administration, which stands ready to support it by selling reserves. 
A)  The money demand and supply increase together, so interest rates are not affected, and the purchase of new domestic credit, when repaid, will restore the backing ratio. 
B)  The central bank finances the lending by selling reserves and the backing ratio is lower. 
C)  Private illiquid banks could borrow internationally, if needed, to repay their loans. 
D)  The peg is guaranteed by the administration, which stands ready to support it by selling reserves.

Question 3

Which of the following occurs during a default crisis?

Accepted Answer

A)  Banks close or declare bankruptcy. 
B)  A government is unable to pay principal or interest on debt owed to banks. 
C)  No one wants to borrow from banks. 
D)  A country's central bank runs out of reserve currencies. 
A)  Banks close or declare bankruptcy. 
B)  A government is unable to pay principal or interest on debt owed to banks. 
C)  No one wants to borrow from banks. 
D)  A country's central bank runs out of reserve currencies.

Question 4

An example in the text of Argentina's convertibility plan during 1993-94 indicated that because of a growing economy, the central bank expanded the supply of money to maintain its U.S. dollar peg by:

Accepted Answer

A)  acquiring foreign reserves. 
B)  buying domestic bonds. 
C)  issuing new government liabilities. 
D)  selling gold. 
A)  acquiring foreign reserves. 
B)  buying domestic bonds. 
C)  issuing new government liabilities. 
D)  selling gold.

Question 5

The example of Peru during the mid-1980s demonstrates all of the following, EXCEPT:

Accepted Answer

A)  how quickly the peg can break after profligate debt monetization. 
B)  how slowly a peg can break after a debt crisis. 
C)  how converting to a floating rate can conserve the last reserves. 
D)  the effects on inflation and the exchange rate following the switch to floating. 
A)  how quickly the peg can break after profligate debt monetization. 
B)  how slowly a peg can break after a debt crisis. 
C)  how converting to a floating rate can conserve the last reserves. 
D)  the effects on inflation and the exchange rate following the switch to floating.

Question 6

What is the basic difference between the cause(s) of a currency crisis according to the first-generation model and the second-generation model?

Accepted Answer

The basic difference between the cause(s

Question 7

When the central bank adopts a currency board, it is considered ______, because a shock to money demand _______.

Accepted Answer

A)  a hard peg; can be covered at any level without a change in domestic credit 
B)  a soft peg; can be absorbed by a change in domestic credit 
C)  a reversion to floating rates; is impossible 
D)  the reinstatement of a gold standard; cannot be covered any other way 
A)  a hard peg; can be covered at any level without a change in domestic credit 
B)  a soft peg; can be absorbed by a change in domestic credit 
C)  a reversion to floating rates; is impossible 
D)  the reinstatement of a gold standard; cannot be covered any other way

Question 8

Saudi Arabia pegs its currency (the riyal, or SAR) to the U.S. dollar. Currently, the exchange rate is SAR3.75 = $US1. Suppose that the Saudi Arabian money multiplier is 1. By how much will the Saudi Arabian money supply change when the Saudi central bank buys $1 million of additional reserves?

Accepted Answer

A)  +SAR 1 million 
B)  -SAR 1 million 
C)  +SAR 3.75 million 
D)  -SAR 3.75 million 
A)  +SAR 1 million 
B)  -SAR 1 million 
C)  +SAR 3.75 million 
D)  -SAR 3.75 million

Explain the essence of the first-generation crisis model.

Whenever the central bank lends to solvent but illiquid private financial institutions, it does not endanger the peg. Why not?

Which of the following occurs during a default crisis?

An example in the text of Argentina's convertibility plan during 1993-94 indicated that because of a growing economy, the central bank expanded the supply of money to maintain its U.S. dollar peg by:

The example of Peru during the mid-1980s demonstrates all of the following, EXCEPT:

What is the basic difference between the cause(s) of a currency crisis according to the first-generation model and the second-generation model?

When the central bank adopts a currency board, it is considered , because a shock to money demand _.

Saudi Arabia pegs its currency (the riyal, or SAR) to the U.S. dollar. Currently, the exchange rate is SAR3.75 = $US1. Suppose that the Saudi Arabian money multiplier is 1. By how much will the Saudi Arabian money supply change when the Saudi central bank buys $1 million of additional reserves?

Trade in the Global Economy

Trade and Technology: The Ricardian Model

Gains and Losses From Trade in the Specific-Factors Model

Trade and Resources: the Heckscher-Ohlin Model

Movement of Labor and Capital Between Countries

Increasing Returns to Scale and Monopolistic Competition

Offshoring of Goods and Services

Import Tariffs and Quotas Under Perfect Competition

Import Tariffs and Quotas Under Imperfect Competition

Export Subsidies in Agriculture and High-Technology Industries

International Agreements: Trade, Labor, and the Environment

The Global Macroeconomy

Introduction to Exchange Rates and the Foreign Exchange Market

Exchange Rates I: the Monetary Approach in the Long Run

Exchange Rates II: the Asset Approach in the Short Run

National and International Accounts: Income, Wealth, and the Balance of Payments

Balance of Payments I: the Gains From Financial Globalization

Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run

Fixed Versus Floating: International Monetary Experience

The Euro

Topics in International Macroeconomics

Filters

Exam 20: Exchange Rate Crises: How Pegs Work and How They Break

Explain the essence of the first-generation crisis model.

Whenever the central bank lends to solvent but illiquid private financial institutions, it does not endanger the peg. Why not?

Which of the following occurs during a default crisis?

An example in the text of Argentina's convertibility plan during 1993-94 indicated that because of a growing economy, the central bank expanded the supply of money to maintain its U.S. dollar peg by:

The example of Peru during the mid-1980s demonstrates all of the following, EXCEPT:

What is the basic difference between the cause(s) of a currency crisis according to the first-generation model and the second-generation model?

When the central bank adopts a currency board, it is considered ______, because a shock to money demand _______.

Saudi Arabia pegs its currency (the riyal, or SAR) to the U.S. dollar. Currently, the exchange rate is SAR3.75 = $US1. Suppose that the Saudi Arabian money multiplier is 1. By how much will the Saudi Arabian money supply change when the Saudi central bank buys $1 million of additional reserves?

Trade in the Global Economy

Trade and Technology: The Ricardian Model

Gains and Losses From Trade in the Specific-Factors Model

Trade and Resources: the Heckscher-Ohlin Model

Movement of Labor and Capital Between Countries

Increasing Returns to Scale and Monopolistic Competition

Offshoring of Goods and Services

Import Tariffs and Quotas Under Perfect Competition

Import Tariffs and Quotas Under Imperfect Competition

Export Subsidies in Agriculture and High-Technology Industries

International Agreements: Trade, Labor, and the Environment

The Global Macroeconomy

Introduction to Exchange Rates and the Foreign Exchange Market

Exchange Rates I: the Monetary Approach in the Long Run

Exchange Rates II: the Asset Approach in the Short Run

National and International Accounts: Income, Wealth, and the Balance of Payments

Balance of Payments I: the Gains From Financial Globalization

Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run

Fixed Versus Floating: International Monetary Experience

The Euro

Topics in International Macroeconomics

Filters

When the central bank adopts a currency board, it is considered , because a shock to money demand _.