Question 1

Explain the concept of liability dollarization.

Accepted Answer

Liability dollarization refers to the si

Question 2

During which period in history were the largest number of nations using the gold standard as their payments system?

Accepted Answer

A)  from 1870 to 1913 
B)  from the end of WWI to 1929 
C)  from 1929 to 1939 
D)  from 1945 to 1975 
A)  from 1870 to 1913 
B)  from the end of WWI to 1929 
C)  from 1929 to 1939 
D)  from 1945 to 1975

Question 3

In 1990, Britain joined the ERM. If the German Bundesbank increased interest rates, what will Britain have to do in order to maintain its exchange rate peg?

Accepted Answer

A)  The British would be forced to increase their interest rates. 
B)  The British would increase their money supply. 
C)  The British would have to lower their interest rates. 
D)  The British government would have to use expansionary fiscal policy. 
A)  The British would be forced to increase their interest rates. 
B)  The British would increase their money supply. 
C)  The British would have to lower their interest rates. 
D)  The British government would have to use expansionary fiscal policy.

Question 4

How does exchange rate volatility affect economic integration?

Accepted Answer

Exchange rate volatility can significant

Question 5

The symmetry-integration diagram shows a set of situations under which a nation should fix or float. There is a set of combinations of integration and symmetry beyond which the benefits of fixing outweigh the costs. This is shown as:

Accepted Answer

A)  a positively sloped line from the origin, equidistant from both axes. 
B)  a negatively sloped line, above which a nation should fix and below which a nation should float. 
C)  a curved line that follows a random path through the space, coming close but never touching either axis. 
D)  a curved line, the slope of which is at first negative, then increases at an increasing rate as the benefits of fixing increase exponentially. 
A)  a positively sloped line from the origin, equidistant from both axes. 
B)  a negatively sloped line, above which a nation should fix and below which a nation should float. 
C)  a curved line that follows a random path through the space, coming close but never touching either axis. 
D)  a curved line, the slope of which is at first negative, then increases at an increasing rate as the benefits of fixing increase exponentially.

Question 6

Suppose Ireland decides to peg its currency to the U.S. dollar. What is the likely impact of expansionary fiscal policy by the United States on Ireland?

Accepted Answer

If Ireland decides to peg its currency t

Question 7

Research has shown that the inflation in a country is:

Accepted Answer

A)  always high if there is a fixed exchange rate. 
B)  always low if there is a flexible exchange rate. 
C)  not dependent on the choice of exchange rate regime. 
D)  higher in developing countries coming out of hyperinflation. 
A)  always high if there is a fixed exchange rate. 
B)  always low if there is a flexible exchange rate. 
C)  not dependent on the choice of exchange rate regime. 
D)  higher in developing countries coming out of hyperinflation.

Question 8

Compared with France, who stayed in the ERM, what was the result of Britain's exit?

Accepted Answer

A)  France's economy performed a bit better. 
B)  Britain had an economic recession while France enjoyed an expansion. 
C)  There was no significant difference. 
D)  France had an economic recession while Britain enjoyed an expansion. 
A)  France's economy performed a bit better. 
B)  Britain had an economic recession while France enjoyed an expansion. 
C)  There was no significant difference. 
D)  France had an economic recession while Britain enjoyed an expansion.

Question 9

Suppose that the United Kingdom pegs the pound to the euro. If all other things remain unchanged, what would you expect to happen to European GDP if all countries who use the euro decided to adopt contractionary fiscal policies?

Accepted Answer

A)  It would rise. 
B)  It would fall. 
C)  It would not change. 
D)  That cannot be determined using the information provided. 
A)  It would rise. 
B)  It would fall. 
C)  It would not change. 
D)  That cannot be determined using the information provided.

Question 10

The text compares the macroeconomic performance of Great Britain and France immediately following Great Britain's departure from the ERM in 1992. What does it conclude?

Accepted Answer

A)  The rate of growth of real GDP was higher in France than in Great Britain. 
B)  The rate of growth of real GDP was lower in France than in Great Britain. 
C)  The rates of growth of real GDP were equal in France and in Great Britain. 
D)  GDP growth of both Great Britain and France increased dramatically after Great Britain withdrew from the ERM. 
A)  The rate of growth of real GDP was higher in France than in Great Britain. 
B)  The rate of growth of real GDP was lower in France than in Great Britain. 
C)  The rates of growth of real GDP were equal in France and in Great Britain. 
D)  GDP growth of both Great Britain and France increased dramatically after Great Britain withdrew from the ERM.

Question 11

A gold standard pegs the currency to:

Accepted Answer

A)  another nation that also adopts a gold standard. 
B)  a basket of metals: gold, silver, platinum, and palladium. 
C)  the price of gold in local currency. 
D)  the U.S. dollar. 
A)  another nation that also adopts a gold standard. 
B)  a basket of metals: gold, silver, platinum, and palladium. 
C)  the price of gold in local currency. 
D)  the U.S. dollar.

Question 12

A pegged rate system that includes policy cooperation is usually:

Accepted Answer

A)  difficult to maintain. 
B)  a good compromise for nations who want exchange rate stability, stable output, and some flexibility. 
C)  not a good bet for nations who are large trading partners. 
D)  administered by large private banks. 
A)  difficult to maintain. 
B)  a good compromise for nations who want exchange rate stability, stable output, and some flexibility. 
C)  not a good bet for nations who are large trading partners. 
D)  administered by large private banks.

Question 13

An open peg might be an option for some nations that desire to:

Accepted Answer

A)  close off capital inflows and outflows and fix currency rates. 
B)  allow the free flow of capital and fix currency rates. 
C)  allow the free flow of capital with flexible currency rates. 
D)  close off capital inflows and outflows with flexible currency rates. 
A)  close off capital inflows and outflows and fix currency rates. 
B)  allow the free flow of capital and fix currency rates. 
C)  allow the free flow of capital with flexible currency rates. 
D)  close off capital inflows and outflows with flexible currency rates.

Question 14

Fear of floating is:

Accepted Answer

A)  when the benefits of floating exchange rates outweigh the costs. 
B)  when the attractions of fixed exchange rates are large relative to those of floating. 
C)  when countries adopt the gold standard. 
D)  when countries say they are floating, but fix their exchange rates in practice. 
A)  when the benefits of floating exchange rates outweigh the costs. 
B)  when the attractions of fixed exchange rates are large relative to those of floating. 
C)  when countries adopt the gold standard. 
D)  when countries say they are floating, but fix their exchange rates in practice.

Question 15

In nations that cannot borrow in their own currencies, which exchange rate system is more destabilizing and less useful in terms of stabilizing GDP?

Accepted Answer

A)  floating exchange rates 
B)  fixed exchange rates 
C)  banded exchange rates 
D)  open pegs 
A)  floating exchange rates 
B)  fixed exchange rates 
C)  banded exchange rates 
D)  open pegs

Question 16

The greater the degree of economic integration between markets in the home country and the base country:

Accepted Answer

A)  the greater the volume of transactions and the greater the benefit to the home country of fixed exchange rates. 
B)  the smaller the volume of transactions and the lesser the benefit to the home country of fixed exchange rates. 
C)  the greater the volume of transactions and the greater the benefit to the home country of flexible exchange rates. 
D)  the less important the volume of transactions and the greater the importance of ethnic similarities. 
A)  the greater the volume of transactions and the greater the benefit to the home country of fixed exchange rates. 
B)  the smaller the volume of transactions and the lesser the benefit to the home country of fixed exchange rates. 
C)  the greater the volume of transactions and the greater the benefit to the home country of flexible exchange rates. 
D)  the less important the volume of transactions and the greater the importance of ethnic similarities.

Question 17

Suppose that Canada decides to peg its dollar ($C, or the loonie) to the U.S. dollar at an exchange rate of $C1 = $US1. What is likely to happen to U.S. GDP following the leftward shift of its IS curve?

Accepted Answer

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

Question 18

As the world economy grew during the 1920s, the gold standard proved to be:

Accepted Answer

A)  a real problem because the quantity of gold could not keep pace with economic expansion, resulting in severe deflation. 
B)  a boon to importers and exporters. 
C)  highly inflationary. 
D)  well-suited to new methods of transferring gold stocks between nations. 
A)  a real problem because the quantity of gold could not keep pace with economic expansion, resulting in severe deflation. 
B)  a boon to importers and exporters. 
C)  highly inflationary. 
D)  well-suited to new methods of transferring gold stocks between nations.

Question 19

Suppose that international trade is the only kind of international transaction between the United States and Canada. The United States currently is experiencing a balance of trade deficit with Canada. What would happen to the United States and Canadian money supplies if the United States and Canada both used the gold standard?

Accepted Answer

A)  The U.S. money supply would rise and the Canadian money supply would fall. 
B)  Both the U.S. and Canadian money supplies would rise. 
C)  The U.S. money supply would fall and the Canadian money supply would rise. 
D)  Both the U.S. and the Canadian money supplies would fall. 
A)  The U.S. money supply would rise and the Canadian money supply would fall. 
B)  Both the U.S. and Canadian money supplies would rise. 
C)  The U.S. money supply would fall and the Canadian money supply would rise. 
D)  Both the U.S. and the Canadian money supplies would fall.

Question 20

When a nation prints money (rather than taxing directly) to finance its government spending, it results in inflation, and purchasing power of the private sector falls. This is known as:

Accepted Answer

A)  benchmarking. 
B)  indirect taxation. 
C)  seigniorage. 
D)  creeping inflation. 
A)  benchmarking. 
B)  indirect taxation. 
C)  seigniorage. 
D)  creeping inflation.

Exam 19: Fixed Versus Floating: International Monetary Experience

Explain the concept of liability dollarization.

During which period in history were the largest number of nations using the gold standard as their payments system?

In 1990, Britain joined the ERM. If the German Bundesbank increased interest rates, what will Britain have to do in order to maintain its exchange rate peg?

How does exchange rate volatility affect economic integration?

The symmetry-integration diagram shows a set of situations under which a nation should fix or float. There is a set of combinations of integration and symmetry beyond which the benefits of fixing outweigh the costs. This is shown as:

Suppose Ireland decides to peg its currency to the U.S. dollar. What is the likely impact of expansionary fiscal policy by the United States on Ireland?

Research has shown that the inflation in a country is:

Compared with France, who stayed in the ERM, what was the result of Britain's exit?

Suppose that the United Kingdom pegs the pound to the euro. If all other things remain unchanged, what would you expect to happen to European GDP if all countries who use the euro decided to adopt contractionary fiscal policies?

The text compares the macroeconomic performance of Great Britain and France immediately following Great Britain's departure from the ERM in 1992. What does it conclude?

A gold standard pegs the currency to:

A pegged rate system that includes policy cooperation is usually:

An open peg might be an option for some nations that desire to:

Fear of floating is:

In nations that cannot borrow in their own currencies, which exchange rate system is more destabilizing and less useful in terms of stabilizing GDP?

The greater the degree of economic integration between markets in the home country and the base country:

Suppose that Canada decides to peg its dollar ($C, or the loonie) to the U.S. dollar at an exchange rate of $C1 = $US1. What is likely to happen to U.S. GDP following the leftward shift of its IS curve?

As the world economy grew during the 1920s, the gold standard proved to be:

When a nation prints money (rather than taxing directly) to finance its government spending, it results in inflation, and purchasing power of the private sector falls. This is known as:

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

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