Deck 20: Flexible Versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy Coordination

Question 1

Under a flexible as compared to a fixed exchange rate system:

A)a nation can more easily achieve its desired inflation-unemployment tradeoff
B)it is more difficult for a nation to achieve its desired inflation-unemployment tradeoff
C)it is more difficult for a nation to achieve internal balance
D)it is more difficult for a nation to achieve external balance

Answer 1

A

Question 2

If the band of allowed fluctuation under a fixed exchange rate system is made very wide,the system will resemble:

A)a flexible exchange rate system
B)the gold standard
C)an adjustable peg
D)a crawling peg

Answer 2

A

Question 3

Everything else being the same,the volume of trade is likely to be:

A)larger under a flexible than under a fixed exchange rate system
B)larger under a fixed than under a flexible exchange rate system
C)equal under a flexible and fixed exchange rate system
D)any of the above

Answer 3

B

Question 4

Price discipline is:

A)greater under a fixed than under a flexible exchange rate system
B)greater under a flexible than under a fixed exchange rate system
C)about the same under a fixed as under a flexible exchange rate system
D)is unrelated to the type of exchange rate system

Question 5

Which of the following statements is correct with respect to flexible exchange rates?

A)they insulate the domestic economy from external shocks much more than fixed exchange rates
B)they are particularly attractive to nations subject to large external shocks
C)they provide less stability to an open economy subject to large internal shocks
D)all of the above

Question 6

Most economists believe that under "normal conditions" speculation:

A)is stabilizing
B)is destabilizing
C)is neither stabilizing nor destabilizing
D)seldom occurs

Question 7

The European Monetary System is or resembles a:

A)fixed exchange rate system
B)a managed exchange rate system
C)a crawling peg system
D)a freely flexible exchange rate system

Question 8

The following established the conditions under which and European Union member nation could join the currency union:

A)The Treaty of Rome
B)The Single European Act
C)The Maastricht Treaty
D)The Treaty of Paris

Question 9

International policy coordination may help avoid

A)beggar-thy-neighbor policies
B)competitive devaluations
C)retaliatory behavior
D)all of the above

Question 10

The formation of an optimum currency area is more likely to be beneficial:

A)the smaller is the mobility of resource among the various nations of the optimum currency area
B)the smaller the structural similarities of member nations are
C)the more willing member nations to closely coordinate their fiscal,monetary,and other policies are
D)all of the above

Question 11

A fixed exchange rate system without a band of allowed fluctuation would require the nation's monetary authorities to intervene in the foreign exchange market:

A)never
B)seldom
C)constantly
D)we cannot say

Question 12

An alleged advantage of flexible over fixed exchange rates is:

A)market efficiency
B)stabilizing speculation
C)price discipline
D)all of the above

Question 13

The most extreme form of an exchange rate peg is a
A )currency board
B)flexible rate
C)floating rate
D)adjustable rate

Question 14

International macroeconomic policy coordination has become more useful and essential in recent decades because:

A)the interdependence among countries has increased
B)the volume of trade has grown more rapidly than GNP
C)of the large increase in international capital flows
D)all of the above

Question 15

Flexible exchange rates:

A)enhance the effectiveness of fiscal policy
B)reduce the effectiveness of fiscal policy
C)enhance the effectiveness of monetary policy
D)reduce the effectiveness of monetary policy

Question 16

Which of the following exchange rate systems is must susceptible to speculation attack?

A)an adjustable peg
B)a currency board
C)a managed float
D)a free float

Question 17

Which if the following is not a benefit of participation in the euro currency are

A)elimination of the need to exchange currencies
B)more rapid financial integration
C)maintenance of independent monetary policy
D)greater economic discipline

Question 18

The European Monetary Union:

A)has a common currency
B)has a single central bank
C)conducts a common monetary policy
D)all of the above

Question 19

The policy of intervention in the foreign exchange market to smooth out short-run fluctuations in exchange rates is called:

A)crawling peg
B)adjustable peg
C)leaning against the wind
D)managed float

Question 20

The policy of changing par values by small preannounced amounts at frequent intervals until the equilibrium exchange rate is reached is called:

A)crawling peg
B)adjustable peg
C)managed float
D)dirty float

Question 21

The open economy trilemma is that:

A)fiscal policies,monetary policies,and direct controls cannot manage all macroeconomic problems.
B)a fixed exchange rate,unrestricted capital flows,and monetary independence cannot all be achieved at the same time.
C)unrestricted capital flows cannot be achieved when fiscal and monetary policies are being implemented.
D)monetary shocks,real shocks,and supply shocks all disturb long run macroeconomic equilibrium.

Question 22

Why is a flexible exchange rate system likely to be more efficient that a fixed exchange rate system?

Question 23

What are the advantages of the adoption of the euro as common currency for the euro member nations?

Question 24

Carefully explain the costs and benefits of a flexible exchange rate regime.

Question 25

What is a currency board?

Question 26

Carefully explain the costs and benefits of a flexible exchange rate regime.

Question 27

Explain what are the benefits and costs for a European nation contemplating joining the European Monetary Union.

Question 28

A primary cause of the Eurozone Crisis has been

A)excessive borrowing by weaker countries in the euro area.
B)too rapid growth that has fueled inflation.
C)the failure of some nations to join the Eurozone.
D)recession in the United States,which caused a recession in Europe.

Question 29

Most countries in the International Monetary Fund have which of the following currency arrangements?

A)floating rates
B)a hard peg
C)a soft peg
D)some other type of arrangement

Question 30

Under what conditions is the formation of an optimum currency area likely to be more beneficial?