Exam 19: Fixed Versus Floating: International Monetary Experience

The Bretton Woods system attempted to set up an international payments system that was based on gold and had flexibility. What happened?

Britain's 1992 recession is probably the result of:

With a flexible exchange rate system, to gain credibility with investors or savers, a nation will often:

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 peso value of Argentina's total external wealth?

If the money supply is 2000, the price level is 20, and the inflation rate is 50%, what is the amount of seigniorage?

If the money supply is 1000, the price level is 5, and the inflation rate is 10%, what is the amount of seigniorage?

Explain why economic similarity is such an important issue for countries deciding whether to fix or float.

Under the gold standard system, 1 ounce of gold was worth $23 in the United States and worth 15.5 pounds in Great Britain. If the price of gold in Great Britain decreases by 10%, then:

Because of the ERM, if Britain desires to maintain fixed exchange rates, then what would Britain be forced to do after German reunification?

Economists studying the impact of direct pegs on trade found that direct pegs:

In comparison with a floating exchange rate, the effect on the volume of trade in a fixed exchange rate is:

"Original sin" sometimes refers to a nation's inability to borrow in its own currency, and therefore is forced to borrow and repay internationally in other currencies. Why is this the case? What other problems flow from this inability?

When a nation chooses to fix or float, it should consider:

If there is a greater degree of economic similarity between the home nation and the base currency nation, the economic stabilization benefit of pegged exchange rates:

Reunification of East and West Germany created which sequence of events? I. an increase in German rates of interest II) a boom in German output and a shift to the right of the German IS curve III) large reunification costs financed by increased government spending IV) an increase in rates of interest in ERM nations

The Exchange Rate Mechanism (ERM) was:

Adding to the problems of low-income nations is the effect of currency depreciation on external wealth. Discuss various views on this issue.

During the late nineteenth century, the gold standard was a subject of controversy. Why?

When analyzing cooperative fixed exchange rate agreements, there are two forms of cooperation:

What was the response to Germany's expansionary fiscal policy from the German central bank, the Bundesbank?