Question 1

A cost-benefit analysis can be done to assess whether a nation should fix its exchange rate. Which of the following is NOT correct?

Accepted Answer

A)  If market integration or symmetry increase, then the net benefits of a fixed exchange rate increase. 
B)  If the net benefits are negative, economically speaking the nation should float. 
C)  If the net benefits are positive, economically speaking the nation should float. 
D)  If the net benefits turn negative, the nation should fix. 
A)  If market integration or symmetry increase, then the net benefits of a fixed exchange rate increase. 
B)  If the net benefits are negative, economically speaking the nation should float. 
C)  If the net benefits are positive, economically speaking the nation should float. 
D)  If the net benefits turn negative, the nation should fix.

Question 2

Suppose that Argentina's dollar-denominated external assets and liabilities are $10 billion and $100 billion, respectively, and its Argentine peso-denominated external assets and liabilities are each 50 billion pesos (P). Suppose further that Argentina fixes its exchange rate at P1 = $US1. What is the dollar value of Argentina's total external wealth?

Accepted Answer

A)  -$60 billion 
B)  -$150 billion 
C)  -$90 billion 
D)  -$210 billion 
A)  -$60 billion 
B)  -$150 billion 
C)  -$90 billion 
D)  -$210 billion

Question 3

In practice, cooperative agreements are:

Accepted Answer

A)  the largest single exchange rate format. 
B)  easy to maintain because they have little impact on the nations. 
C)  often contentious because nations favor their own situations over those of their trading partners. 
D)  impossible to maintain because nations have widely differing systems and values. 
A)  the largest single exchange rate format. 
B)  easy to maintain because they have little impact on the nations. 
C)  often contentious because nations favor their own situations over those of their trading partners. 
D)  impossible to maintain because nations have widely differing systems and values.

Question 4

According to the text, what share of the world's countries now use floating exchange rate systems?

Accepted Answer

A)  100% 
B)  70% 
C)  30% 
D)  15% 
A)  100% 
B)  70% 
C)  30% 
D)  15%

Question 5

Noncooperative adjustments could lead to a cycle of competitive devaluations. Explain this concept and how it might affect a fixed exchange rate system.

Accepted Answer

Noncooperative adjustments refer to when

Question 6

As economic similarity rises, the stability costs of a common currency decrease because there are:

Accepted Answer

A)  more asymmetric shocks. 
B)  fewer asymmetric shocks. 
C)  no asymmetric shocks. 
D)  no symmetric shocks. 
A)  more asymmetric shocks. 
B)  fewer asymmetric shocks. 
C)  no asymmetric shocks. 
D)  no symmetric shocks.

Question 7

Under the gold standard system, if 1 ounce of gold was worth $23 in the United States and worth 15.5 pounds in Great Britain, then:

Accepted Answer

A)  $1 = 1.48 pounds. 
B)  1 pound = $1.48. 
C)  $1 = 365 pounds. 
D)  1 pound = $0.67. 
A)  $1 = 1.48 pounds. 
B)  1 pound = $1.48. 
C)  $1 = 365 pounds. 
D)  1 pound = $0.67.

Question 8

Which of the following did NOT lead to the collapse of Bretton Woods?

Accepted Answer

A)  ample supplies of gold 
B)  collapse of capital controls 
C)  the Vietnam War 
D)  unwillingness to peg to the U.S. dollar 
A)  ample supplies of gold 
B)  collapse of capital controls 
C)  the Vietnam War 
D)  unwillingness to peg to the U.S. dollar

Question 9

If the Deutsche Mark and the British pound exchange rates are fixed, and the German Bundesbank conducts a tight monetary policy to counteract an expansion in German GDP, interest rates in Germany will ____, which will force Britain to ______.

Accepted Answer

A)  fall; default 
B)  rise; raise its rates to maintain interest parity and the fixed exchange rate 
C)  fall; sell gold 
D)  rise; lower its rates to maintain interest parity and the fixed exchange rate 
A)  fall; default 
B)  rise; raise its rates to maintain interest parity and the fixed exchange rate 
C)  fall; sell gold 
D)  rise; lower its rates to maintain interest parity and the fixed exchange rate

Question 10

Which of the following statements is correct? I. The ERM used the Deutsche Mark as the base or center currency.
II) The ERM allowed the Italian central bank autonomy over its policies.
III) The ERM allowed the Bundesbank monetary autonomy.

Accepted Answer

A)  I only 
B)  II only 
C)  III only 
D)  I, II, and III 
A)  I only 
B)  II only 
C)  III only 
D)  I, II, and III

Question 11

Which of the following fixed exchange rate regimes has very little monetary policy autonomy?

Accepted Answer

A)  dirty float 
B)  open peg 
C)  open nonpeg 
D)  closed 
A)  dirty float 
B)  open peg 
C)  open nonpeg 
D)  closed

Question 12

Suppose that Canada decides to peg its dollar ($C, or the loonie) to the U.S. dollar at an exchange rate of $C1 = $US1. Now suppose that the increase in the price of oil in the second half of 2007 causes the IS curve in the United States to shift to the left. If all other things remain unchanged, what will happen to U.S. interest rates?

Accepted Answer

A)  They will rise. 
B)  They will fall. 
C)  They will not change. 
D)  They will rise dramatically. 
A)  They will rise. 
B)  They will fall. 
C)  They will not change. 
D)  They will rise dramatically.

Question 13

The fiscal shock in Germany due to reunification caused the Bundesbank to pursue a monetary policy that:

Accepted Answer

A)  was appropriate for Britain, since it had experienced a similar shock. 
B)  was appropriate for all the other ERM nations but not Britain. 
C)  was appropriate only for Germany, since neither Britain nor other ERM nations experienced a similar shock. 
D)  had poor timing, since the monetary action should have come before the reunification. 
A)  was appropriate for Britain, since it had experienced a similar shock. 
B)  was appropriate for all the other ERM nations but not Britain. 
C)  was appropriate only for Germany, since neither Britain nor other ERM nations experienced a similar shock. 
D)  had poor timing, since the monetary action should have come before the reunification.

Question 14

What is a beggar-thy-neighbor policy and why would a country engage in such a policy?

Accepted Answer

A beggar-thy-neighbor policy refers to a

Question 15

Explain seigniorage and how it influences the choice of exchange rate regime.

Accepted Answer

Seigniorage refers to the profit that a

Question 16

Great Britain opted out of the ERM in 1992 because its government concluded that:

Accepted Answer

A)  it wanted to increase its trade with North America rather than Europe. 
B)  the gains from being a member of the ERM outweighed the costs from higher German interest rates. 
C)  the costs associated with higher German interest rates outweighed the gains from being a member of the ERM. 
D)  it was unable to agree with the French on an exchange rate between the pound and the French franc. 
A)  it wanted to increase its trade with North America rather than Europe. 
B)  the gains from being a member of the ERM outweighed the costs from higher German interest rates. 
C)  the costs associated with higher German interest rates outweighed the gains from being a member of the ERM. 
D)  it was unable to agree with the French on an exchange rate between the pound and the French franc.

Question 17

In a system in which there is an administered exchange rate, what is the term used when the government sets the rate lower to buy more units of foreign currency?

Accepted Answer

A)  a revaluation 
B)  an appreciation 
C)  a depreciation 
D)  a devaluation 
A)  a revaluation 
B)  an appreciation 
C)  a depreciation 
D)  a devaluation

Question 18

A currency depreciation affects total spending in the short run through expenditure switching, but the net external wealth effect also can influence:

Accepted Answer

A)  other types of expenditure such as consumption or investment. 
B)  the ability of the nation to keep up technologically, since new capital will be more expensive. 
C)  the production function of the home country. 
D)  the ability of the government to conduct monetary policy. 
A)  other types of expenditure such as consumption or investment. 
B)  the ability of the nation to keep up technologically, since new capital will be more expensive. 
C)  the production function of the home country. 
D)  the ability of the government to conduct monetary policy.

Question 19

Which of the following events is least likely to take place under a fixed exchange rate system?

Accepted Answer

A)  an increased volume of trade because of a decline in exchange rate volatility 
B)  increased cross-border capital flows 
C)  increase in cost of trade because of higher transaction costs 
D)  increased cross-border labor flows in integrated economies 
A)  an increased volume of trade because of a decline in exchange rate volatility 
B)  increased cross-border capital flows 
C)  increase in cost of trade because of higher transaction costs 
D)  increased cross-border labor flows in integrated economies

Question 20

Under a gold standard, as trade takes place and the foreign exchange market is affected, ______ tend(s) to restore equilibrium.

Accepted Answer

A)  a change in the interest rate 
B)  gold flows between nations 
C)  currency flows 
D)  changes in the value of gold 
A)  a change in the interest rate 
B)  gold flows between nations 
C)  currency flows 
D)  changes in the value of gold

A cost-benefit analysis can be done to assess whether a nation should fix its exchange rate. Which of the following is NOT correct?

In practice, cooperative agreements are:

According to the text, what share of the world's countries now use floating exchange rate systems?

Noncooperative adjustments could lead to a cycle of competitive devaluations. Explain this concept and how it might affect a fixed exchange rate system.

As economic similarity rises, the stability costs of a common currency decrease because there are:

Under the gold standard system, if 1 ounce of gold was worth $23 in the United States and worth 15.5 pounds in Great Britain, then:

Which of the following did NOT lead to the collapse of Bretton Woods?

If the Deutsche Mark and the British pound exchange rates are fixed, and the German Bundesbank conducts a tight monetary policy to counteract an expansion in German GDP, interest rates in Germany will , which will force Britain to __.

Which of the following statements is correct? I. The ERM used the Deutsche Mark as the base or center currency. II) The ERM allowed the Italian central bank autonomy over its policies. III) The ERM allowed the Bundesbank monetary autonomy.

Which of the following fixed exchange rate regimes has very little monetary policy autonomy?

The fiscal shock in Germany due to reunification caused the Bundesbank to pursue a monetary policy that:

What is a beggar-thy-neighbor policy and why would a country engage in such a policy?

Explain seigniorage and how it influences the choice of exchange rate regime.

Great Britain opted out of the ERM in 1992 because its government concluded that:

In a system in which there is an administered exchange rate, what is the term used when the government sets the rate lower to buy more units of foreign currency?

A currency depreciation affects total spending in the short run through expenditure switching, but the net external wealth effect also can influence:

Which of the following events is least likely to take place under a fixed exchange rate system?

Under a gold standard, as trade takes place and the foreign exchange market is affected, ______ tend(s) to restore equilibrium.

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

Exchange Rate Crises: How Pegs Work and How They Break

The Euro

Topics in International Macroeconomics

Filters

Exam 19: Fixed Versus Floating: International Monetary Experience

A cost-benefit analysis can be done to assess whether a nation should fix its exchange rate. Which of the following is NOT correct?

In practice, cooperative agreements are:

According to the text, what share of the world's countries now use floating exchange rate systems?

Noncooperative adjustments could lead to a cycle of competitive devaluations. Explain this concept and how it might affect a fixed exchange rate system.

As economic similarity rises, the stability costs of a common currency decrease because there are:

Under the gold standard system, if 1 ounce of gold was worth $23 in the United States and worth 15.5 pounds in Great Britain, then:

Which of the following did NOT lead to the collapse of Bretton Woods?

If the Deutsche Mark and the British pound exchange rates are fixed, and the German Bundesbank conducts a tight monetary policy to counteract an expansion in German GDP, interest rates in Germany will ____, which will force Britain to ______.

Which of the following statements is correct? I. The ERM used the Deutsche Mark as the base or center currency. II) The ERM allowed the Italian central bank autonomy over its policies. III) The ERM allowed the Bundesbank monetary autonomy.

Which of the following fixed exchange rate regimes has very little monetary policy autonomy?

The fiscal shock in Germany due to reunification caused the Bundesbank to pursue a monetary policy that:

What is a beggar-thy-neighbor policy and why would a country engage in such a policy?

Explain seigniorage and how it influences the choice of exchange rate regime.

Great Britain opted out of the ERM in 1992 because its government concluded that:

In a system in which there is an administered exchange rate, what is the term used when the government sets the rate lower to buy more units of foreign currency?

A currency depreciation affects total spending in the short run through expenditure switching, but the net external wealth effect also can influence:

Which of the following events is least likely to take place under a fixed exchange rate system?

Under a gold standard, as trade takes place and the foreign exchange market is affected, ______ tend(s) to restore equilibrium.

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

Exchange Rate Crises: How Pegs Work and How They Break

The Euro

Topics in International Macroeconomics

Filters

If the Deutsche Mark and the British pound exchange rates are fixed, and the German Bundesbank conducts a tight monetary policy to counteract an expansion in German GDP, interest rates in Germany will , which will force Britain to __.