Question 1

The world financial and monetary system consists of several large

Accepted Answer

A)  Bank of Japan. 
B)  Federal Reserve Bank. 
C)  European Central Bank. 
D)  Bank of England. 
E)  Bundesbank.

Question 2

Economic factors that put pressure on fixed exchange rates include

Accepted Answer

A)  different rates of growth of productivity in two or more countries. 
B)  different rates of inflation in two or more countries. 
C)  different levels of potential GDP in two or more countries. 
D)  different product mixes in two or more countries. 
E)  a and b only.

Question 3

After the Bretton Woods system was abandoned in the early 1970s, U.S. exchange rates became the products of implicit or explicit international agreements that

Accepted Answer

A)  call for exchange rates to float freely and be "managed" by market forces. 
B)  call for exchange rates to be fixed by active, "hold up the lamppost" intervention by central banks across the world. 
C)  call for exchange rates to fluctuate freely in markets, apart from occasional intervention by major central banks in times of extreme turbulence. 
D)  either b or c, depending on circumstance. 
E)  none of the above.

Question 4

Which of the following countries experienced deflation during the 1990s?

Accepted Answer

A)  New Zealand 
B)  Australia 
C)  China 
D)  Japan 
E)  United States

Question 5

The Eurozone includes each of the following countries except

Accepted Answer

A)  Austria. 
B)  England. 
C)  Finland. 
D)  France. 
E)  Germany.

Question 6

The macroeconomic policy trilemma regarding exchange rate policies is that monetary authorities

Accepted Answer

A)  cannot pursue independent monetary policy while maintaining fixed exchange rates and allowing free capital movement. 
B)  maintain fixed exchange rates while pursuing an independent monetary policy and allowing free capital movement. 
C)  allow free capital movement while pursuing an independent monetary policy and maintaining fixed exchange rates. 
D)  all of the above. 
E)  none of the above.

Question 7

If a central bank were to undergo sterilized foreign exchange intervention, it would offset an unwanted appreciation of its currency by

Accepted Answer

A)  selling foreign reserves and selling domestic credit at the same time. 
B)  buying foreign reserves and selling domestic credit at the same time. 
C)  selling foreign reserves and buying domestic credit at the same time. 
D)  buying foreign reserves and buying domestic credit at the same time. 
E)  none of the above.

Question 8

Researchers including a real exchange rate term in the Taylor rule such that r = p + dp - p*) + BY^ + R* - aEP/PW) have found that, for the Germany and Japan, a is

Accepted Answer

A)  positive. 
B)  negative. 
C)  equal to zero. 
D)  impossible to calculate. 
E)  undefined.

Question 9

Signators of the Bretton Woods system agreed to

Accepted Answer

A)  intervene to keep their currencies exactly at par values. 
B)  intervene to keep their currencies within 10 percent of par values. 
C)  intervene to keep their currencies between par values and 1 percent above par values. 
D)  remove domestic concerns from policies directed at maintaining their currencies' par values. 
E)  none of the above.

Question 10

From the experience of Japan and the United States, we learn that periods of
_ _ _ _ _ _ _ _ _ _ _ _ inflation correlate with __________ macroeconomic
Performance.

Accepted Answer

A)  low, poor 
B)  high, good 
C)  high, poor 
D)  low, good 
E)  both c and d

Question 11

Which of the following practices or objectives are necessary to ensure a stable long-run monetary policy?

Accepted Answer

A)  Flexible prices 
B)  Flexible exchange rates 
C)  Inflation targets 
D)  A monetary policy rule 
E)  All of the above except a

Question 12

As a country works toward freeing up its financial markets and joining the other major world financial and monetary systems, it must open up which of the following areas?

Accepted Answer

A)  Currency transactions 
B)  Capital movement 
C)  Movement of goods and services 
D)  All of the above 
E)  Only a and b

Question 13

Due to the inability to maintain fixed exchange rates in the European Monetary System which of the following countries left the EMS?

Accepted Answer

A)  France 
B)  Germany 
C)  Spain 
D)  Britain 
E)  Luxembourg

Question 14

Under the Bretton Woods Agreement, preventing the appreciation of a currency would result in

Accepted Answer

A)  a reserve inflow and a reduction in dollar securities. 
B)  a reserve outflow and a reduction in dollar securities.. 
C)  a reserve inflow and an increase in dollar securities. 
D)  a reserve outflow and an increase in dollar securities. 
E)  a reserve inflow and no change in the level of dollar securities.

Question 15

Which of the following countries has tight controls on the movement of currency and securities across its borders?

Accepted Answer

A)  South Africa 
B)  People's Republic of China 
C)  Great Britain 
D)  all of the above 
E)  none of the above.

Question 16

We can understand why the early 1990s saw such a restrictive monetary policy in Japan by considering all of the following explanations except

Accepted Answer

A)  a concern over inflation that was too high. 
B)  a concern that the depression was caused by nonmonetary factors. 
C)  a need to counteract inflated asset prices. 
D)  monetary officials who felt that lowering interest rates further would do no good. 
E)  none of the above.

Question 17

During the 1980s and 1990s, the European monetary system EMS) was tied to which of the following currencies?

Accepted Answer

A)  Pound. 
B)  Swiss franc. 
C)  Mark. 
D)  Dollar. 
E)  Peseta.

Question 18

All of the following countries except one have experienced reduced real GDP fluctuations during the period from 1960-2000. Which does not belong?

Accepted Answer

A)  Australia 
B)  Canada 
C)  Japan 
D)  United Kingdom 
E)  United States

Question 19

Under the Bretton Woods Agreement, support of a country's currency in the face of depreciation against the dollar could continue

Accepted Answer

A)  indefinitely. 
B)  only as long as U.S. holdings of that country's securities lasted, so that the United States would continue to have something to sell that country. 
C)  only as long as that country's holdings of its own international currency securities lasted, so that it could continue to purchase its own securities. 
D)  only as long as that country's holdings of dollar reserves lasted, so that it could continue to purchase domestic securities. 
E)  only as long as the World Bank did not find out and respond with punitive monetary intervention.

Question 20

Which of the following correctly distinguishes between depreciation and devaluation?

Accepted Answer

A)  Market interactions cause currencies to depreciate, but only governments can enact policies of devaluation. 
B)  Market interactions can cause either, but policy decisions by governments can produce only depreciation. 
C)  Market interactions can cause either, but policy decisions by governments can produce only devaluation. 
D)  Market interactions can cause either, but only policy decisions by governments can produce a devaluation. 
E)  None of the above.

Exam 18: Macroeconomic Policy in the World Economy