Question 1

With a fixed exchange rate a balance of payments surplus that causes an increase of the domestic money supply is:

Accepted Answer

A)  sterilized. 
B)  recessionary. 
C)  deflationary. 
D)  unsterilized.

Question 2

The main features of the European Monetary system were:

Accepted Answer

A)  the ECU. 
B)  currency swap agreement between member countries. 
C)  the exchange rate mechanism. 
D)  all of the above.

Question 3

Which one of the following occurrences would increase the supply of US dollars on the international exchange markets?

Accepted Answer

A)  A German family travels to Disney World for their vacation. 
B)  An American family travels to Tokyo for their vacation. 
C)  A German firm purchases some US-built Ford trucks. 
D)  A group of British investors purchases an American bank.

Question 4

In the short run, fiscal policy is a powerful tool under fixed exchange rates.

Accepted Answer

A) True 
 B)False

Question 5

The foreign exchange system in use internationally today is:

Accepted Answer

A)  a gold standard. 
B)  a fixed exchange system. 
C)  an adjustable peg system. 
D)  a "managed float" system.

Question 6

If interest rates are set to maintain a fixed exchange rate they cannot be set independently to influence the domestic economy.

Accepted Answer

A) True 
 B)False

Question 7

The adoption of a fixed exchange rate precludes the pursuit of a money supply or an inflation target.

Accepted Answer

A) True 
 B)False

Question 8

Interest rate parity means:

Accepted Answer

A)  goods and services trade at equal prices in domestic currencies. 
B)  nominal interest rates in all countries are the same. 
C)  real interest rates in all countries are the same. 
D)  differences in interest rates among countries reflect expected changes in exchange rates.

Question 9

A devaluation with sluggish price adjustment reduces competitiveness and aggregate demand.

Accepted Answer

A) True 
 B)False

Question 10

Explain why monetary policy in an open economy with a flexible exchange rate might have stronger effects on AD than monetary policy in a closed economy.

Accepted Answer

The answer of Explain why monetary policy in an open...

Question 11

In a managed float, central banks intervene in the _____ market to try to _________________ and nudge the exchange rate in the desired direction.

Accepted Answer

A)  money, remain on the floor 
B)  money, remain on the ceiling 
C)  foreign exchange, remain on the floor 
D)  foreign exchange, smooth out fluctuations

Question 12

-Refer to Figure 12.2. If the Canadian dollar price of the euro were $1.55, the quantity of euros supplied would be __________ than the quantity demanded. This would cause the euro to __________ value.

Accepted Answer

A)  greater; gain 
B)  less; gain 
C)  greater; lose 
D)  less; lose

Question 13

A country's balance of payments is:

Accepted Answer

A)  an accounting record of household incomes and expenditures. 
B)  the difference between the government's revenues and expenditures. 
C)  a record of the country's receipts from and payments to other countries. 
D)  the difference between exports and imports of goods and services.

Question 14

It is not possible to have at the same time:

Accepted Answer

A)  fixed exchange rates and perfect capital mobility. 
B)  fixed exchange rates and monetary sovereignty. 
C)  perfect capital mobility and monetary sovereignty. 
D)  fixed exchange rates, perfect capital mobility and monetary sovereignty.

Question 15

According to the concept of "purchasing power parity," changes in exchange rates among: countries will reflect differences in:

Accepted Answer

A)  the gold stock in each country. 
B)  the rates of inflation. 
C)  fiscal policy. 
D)  growth rates.

Question 16

With a _____ exchange rate, and perfect capital mobility, the domestic interest rate must _____ foreign
Interest rates to prevent massive capital flows and allow equilibrium in the foreign exchange market.

Accepted Answer

A)  fixed, match 
B)  fixed, be greater than 
C)  fixed, be less than 
D)  floating, match

Question 17

A fall in the value of the Canadian dollar, which raises the exchange rate, is called:

Accepted Answer

A)  an appreciation. 
B)  a depreciation. 
C)  a flexible exchange rate. 
D)  a fixed exchange rate.

Question 18

High capital mobility reduces the scope for an independent domestic monetary policy in a flexible exchange rate system.

Accepted Answer

A) True 
 B)False

Question 19

The conditions under which European countries agreed to adopt the euro illustrate:

Accepted Answer

A)  that a common currency requires a super-national central bank. 
B)  the required coordination of national fiscal policies. 
C)  the acceptance of a common inflation target. 
D)  all of the above.

Question 20

The demand for US dollars on the foreign exchange market slopes __________ because Canadians spend
__________ on US goods when the Canadian dollar price of the US dollar is ________.

Accepted Answer

A)  upward; less; higher 
B)  upward; more; higher 
C)  downward; less; lower 
D)  downward; more; lower

Exam 12: An AD As Model of the Inflation Rate and Real GDP

With a fixed exchange rate a balance of payments surplus that causes an increase of the domestic money supply is:

The main features of the European Monetary system were:

Which one of the following occurrences would increase the supply of US dollars on the international exchange markets?

In the short run, fiscal policy is a powerful tool under fixed exchange rates.

The foreign exchange system in use internationally today is:

If interest rates are set to maintain a fixed exchange rate they cannot be set independently to influence the domestic economy.

The adoption of a fixed exchange rate precludes the pursuit of a money supply or an inflation target.

Interest rate parity means:

A devaluation with sluggish price adjustment reduces competitiveness and aggregate demand.

Explain why monetary policy in an open economy with a flexible exchange rate might have stronger effects on AD than monetary policy in a closed economy.

In a managed float, central banks intervene in the _ market to try to _____________ and nudge the exchange rate in the desired direction.

-Refer to Figure 12.2. If the Canadian dollar price of the euro were $1.55, the quantity of euros supplied would be than the quantity demanded. This would cause the euro to value.

A country's balance of payments is:

It is not possible to have at the same time:

According to the concept of "purchasing power parity," changes in exchange rates among: countries will reflect differences in:

With a _ exchange rate, and perfect capital mobility, the domestic interest rate must _ foreign Interest rates to prevent massive capital flows and allow equilibrium in the foreign exchange market.

A fall in the value of the Canadian dollar, which raises the exchange rate, is called:

High capital mobility reduces the scope for an independent domestic monetary policy in a flexible exchange rate system.

The conditions under which European countries agreed to adopt the euro illustrate:

The demand for US dollars on the foreign exchange market slopes because Canadians spend on US goods when the Canadian dollar price of the US dollar is .

Exam 12: An AD As Model of the Inflation Rate and Real GDP

With a fixed exchange rate a balance of payments surplus that causes an increase of the domestic money supply is:

The main features of the European Monetary system were:

Which one of the following occurrences would increase the supply of US dollars on the international exchange markets?

In the short run, fiscal policy is a powerful tool under fixed exchange rates.

The foreign exchange system in use internationally today is:

If interest rates are set to maintain a fixed exchange rate they cannot be set independently to influence the domestic economy.

The adoption of a fixed exchange rate precludes the pursuit of a money supply or an inflation target.

Interest rate parity means:

A devaluation with sluggish price adjustment reduces competitiveness and aggregate demand.

Explain why monetary policy in an open economy with a flexible exchange rate might have stronger effects on AD than monetary policy in a closed economy.

In a managed float, central banks intervene in the _____ market to try to _________________ and nudge the exchange rate in the desired direction.

-Refer to Figure 12.2. If the Canadian dollar price of the euro were $1.55, the quantity of euros supplied would be __________ than the quantity demanded. This would cause the euro to __________ value.

A country's balance of payments is:

It is not possible to have at the same time:

According to the concept of "purchasing power parity," changes in exchange rates among: countries will reflect differences in:

With a _____ exchange rate, and perfect capital mobility, the domestic interest rate must _____ foreign Interest rates to prevent massive capital flows and allow equilibrium in the foreign exchange market.

A fall in the value of the Canadian dollar, which raises the exchange rate, is called:

High capital mobility reduces the scope for an independent domestic monetary policy in a flexible exchange rate system.

The conditions under which European countries agreed to adopt the euro illustrate:

The demand for US dollars on the foreign exchange market slopes __________ because Canadians spend __________ on US goods when the Canadian dollar price of the US dollar is ________.

In a managed float, central banks intervene in the _ market to try to _____________ and nudge the exchange rate in the desired direction.

-Refer to Figure 12.2. If the Canadian dollar price of the euro were $1.55, the quantity of euros supplied would be than the quantity demanded. This would cause the euro to value.

With a _ exchange rate, and perfect capital mobility, the domestic interest rate must _ foreign Interest rates to prevent massive capital flows and allow equilibrium in the foreign exchange market.

The demand for US dollars on the foreign exchange market slopes because Canadians spend on US goods when the Canadian dollar price of the US dollar is .