Deck 3: The International Monetary System

Question 1

Under the classic gold standard, if prices began rising in the U.S.

A) the dollar value of the pound would rise
B) the dollar value of the pound would fall
C) the U.S. would begin running a balance of trade surplus
D) gold would flow out of the U.S. and the U.S. money supply would drop

Answer 1

D

Question 2

Under a _________, countries adjust their national economic policies to maintain their exchange rates within a specific margin around agreed-upon, fixed central exchange rates.

A) managed float
B) 'beggar-thy-neighbor" devaluation
C) dirty float
D) target-zone agreement

Answer 2

D

Question 3

Bretton Woods system fell apart because

A) of the oil crisis
B) U.S. monetary policy was too expansionary
C) the United States ran a large trade deficit
D) the United States no longer supported a pegged gold standard

Answer 3

B

Question 4

________ is nonconvertible paper money backed only by faith in the monetary authorities.

A) Specie
B) Fiat money
C) Seignorage
D) Par value

Question 5

Managed floats do NOT fall into which of the following categories of central bank intervention?

A) smoothing out daily fluctuations
B) leaning against the wind
C) unofficial pegging
D) letting market forces set exchange rates

Question 6

government intervention attempts to reduce for exporters and importers the uncertainty caused by disruptive exchange rate changes for the short and medium term, it is referred to as _________.

A) smoothing out daily fluctuations
B) leaning against the wind
C) unofficial pegging
D) a dirty float

Question 7

gold standard was dissolved in 1973 because

A) the U.S. printed too many dollars to maintain gold at $35/oz
B) exchange markets preferred a floating rate system
C) high interest rates raised the cost of holding gold
D) some countries preferred to hold gold instead of dollars

Question 8

weak peso is most likely to cause

A) added employment and inflation in Mexico
B) less unemployment but more inflation in Mexico
C) more unemployment but less inflation in Mexico
D) less unemployment and less inflation in Mexico

Question 9

Under the gold standard

A) price levels rose dramatically
B) price levels stayed constant over time
C) the long?run stability of the price level includes alternating periods of inflation and deflation
D) fiat money is more valuable

Question 10

Under a fixed-rate system, a country that followed policies leading to a lower inflation rate than that experienced by its trading partners would

A) come under pressure to expand its money supply
B) restrict the growth of its money supply
C) experience a balance?of?payments deficit
D) be forced to buy its currency in the foreign exchange market

Question 11

gold standard ensures a long?run tendency toward price stability because

A) gold is desirable
B) gold is durable and storable
C) the cost of producing an ounce of gold stays relatively constant overtime
D) gold supply is directly related to consumer satisfaction

Question 12

Calls for a new gold standard reflect

A) fundamental distrust of government's willingness to maintain the integrity of fiat money
B) a general willingness to accept fiat money
C) a short memory of what actually transpired under the gold standard
D) the durability and desirability of gold

Question 13

European Monetary System is best described as a

A) clean float
B) target-zone arrangement
C) dirty float
D) managed float

Question 14

characteristic of gold that is most important to the success of a gold standard is that it is

A) portable
B) storable
C) easily standardized
D) expensive to produce as well as universally acceptable

Question 15

Bretton Woods system

A) ended in 1971
B) ended in 1939 when World War II began
C) is currently the basis for the international monetary system
D) is currently in use only by the major industrial nations

Question 16

________ is an exchange rate system that is relatively free from central bank and other government-type interventions.

A) managed float
B) clean float
C) dirty float
D) target-zone arrangement

Question 17

rising dollar in the early 1980s can be attributed to

A) high real interest rates in the United States
B) improved investment prospects in the United States
C) the growing U.S. budget deficit
D) a and b only

Question 18

Under a fixed-rate system, a country that followed policies that would lead to a higher rate of inflation than that experienced by its trading partners would

A) experience a balance?of?payments surplus as its goods became more expensive
B) see a decrease in the supply of its currency on the foreign exchange markets
C) find its currency subject to upward pressure
D) experience a balance?of?payments deficit as its goods became more expensive

Question 19

current exchange rate system can best be characterized as a _______ system.

A) free float
B) managed float
C) target-zone arrangement
D) fixed-rate
E) hybrid

Question 20

fall of the dollar beginning in 1985 can be attributed to

A) the growing U.S. budget deficit
B) the large U.S. trade deficit
C) rapid U.S. economic growth
D) the slowdown in U.S. economic growth relative to growth overseas

Question 21

Underlying the emerging markets currency crises, there is a fundamental conflict among policy objectives that the target nations have failed to resolve. Which one of the following is NOT in conflict?

A) IMF bailouts
B) fixed exchange rates
C) independent domestic monetary policy
D) free capital movement

Question 22

a fixed-rate system central banks would NOT maintain currency values by

A) increasing the money supplies of nations with overvalued currencies
B) boosting the money supplies of nations with undervalued currencies
C) buying up overvalued currencies in the foreign exchange market
D) selling undervalued currencies in the foreign exchange market

Question 23

Governments intervene in the foreign exchange markets for all of the following EXCEPT to

A) earn foreign exchange
B) reduce economic uncertainty
C) improve the nation's export competitiveness
D) reduce inflation

Question 24

order to boost the value of the DM relative to the dollar

A) the Fed should sell dollars for DM and the Bundesbank should buy DM with dollars
B) the Fed should sell dollars for DM and the Bundesbank should buy dollars with DM
C) the Fed should sell DM for dollars and the Bundesbank should sell dollars for DM
D) the Fed should sell DM for dollars and the Bundesbank should buy DM with dollars

Question 25

Under a fixed-rate system, which of the following four alternatives to devaluation is most likely to succeed?

A) foreign borrowing
B) austerity
C) wage and price controls
D) exchange controls