Deck 3: The International Monetary System

Question 1

Managed floats would 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) target-zone arrangements

Answer 1

D

Question 2

The current exchange rate system can best be characterized as a

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

Answer 2

E

Question 3

The European Monetary System is best described as a

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

Answer 3

B

Question 4

A 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 5

A 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 6

The 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 7

The 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 8

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

Question 9

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

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

Question 10

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

Question 11

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 deficit 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 exchange rate subject to upward pressure
D) experience a balance-of-payments surplus.

Question 12

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 13

________ is nonconvertible paper money backed only by faith that the monetary authorities will not issue more money.

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

Question 14

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 15

The 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

Question 16

The 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 17

When 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 18

The gold standard was dissolved in 1973 because

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

Question 19

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 20

The 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

Question 21

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 22

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

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

Question 23

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

Question 24

In order to boost the value of the euro relative to the dollar

A) the Fed should sell dollars for euros and the European central bank should buy DM with dollars
B) the Fed should sell dollars for euros and the European central bank should buy dollars with euros
C) the Fed should sell euros for dollars and the European central bank should sell dollars for DM
D) the Fed should sell DM for dollars and the European central bank should buy euros with dollars

Question 25

In a fixed?rate system, central banks maintain currency values by

A) reducing 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) buying undervalued currencies in the foreign exchange market