Question 1

Which of the following,according to the Maastricht treaty,was a condition for participating in the common currency area?

Accepted Answer

A)  a relatively small budget deficit-to-GDP ratio
B)  at least half the population of the country must speak German,French and English
C)  a promise that any future devaluations will be announced in advance
D)  the replacement of the country's prime minister with an appointee of the new "United States of Europe"
E)  a relatively small amount of foreign aid to countries outside the area A

Question 2

Which of the following is an argument of opponents of devaluations?

Accepted Answer

A)  devaluations cause relatively slow adjustments.
B)  participants in foreign exchange markets have a short memory: if the expected devaluation doesn't occur within a short time-period,they will stop expecting it.
C)  a devaluation causes a nation with fixed exchange rates to lose credibility in the medium run,driving its interest rate higher.
D)  all of the above
E)  none of the above C

Question 3

Assume that policy makers are pursuing a fixed exchange rate regime and that the economy is initially operating at the natural level.Which of the following will occur as a result of a evaluation?

Accepted Answer

A)  the real exchange rate will be permanently higher in the medium run.
B)  the real exchange rate will be permanently lower in the medium run.
C)  the effects of this devaluation on the real exchange rate will be ambiguous in the medium run.
D)  the nominal exchange rate will initially increase in the short run and then decrease in the medium run.
E)  none of the above E

Question 4

In chapter 21,the expected future nominal exchange rate in the long run say,Eet+n,is assumed to be the nominal exchange rate at which

Accepted Answer

A)  the current account is in balance.
B)  the future rate of appreciation or depreciation is constant.
C)  domestic and foreign price levels are equal.
D)  one unit of foreign currency exchanges for one unit of domestic currency.
E)  none of the above

Question 5

A revaluation causes which of the following to occur in the short run in the AS / AD model?

Accepted Answer

A)  a reduction in net exports
B)  a reduction in the price level
C)  a reduction in output
D)  all of the above
E)  none of the above

Question 6

Explain each of the following and why each might be used: hard pegs,currency boards,and dollarizations.

Accepted Answer

The answer of Explain each of the following and why...

Question 7

The new European Central Bank is located in which country?

Accepted Answer

A)  England
B)  Italy
C)  France
D)  Spain
E)  Germany

Question 8

Suppose the economy is operating below the natural level of output.Discuss the arguments for and against using a devaluation in such a situation.

Accepted Answer

The answer of Suppose the economy is operating below the...

Question 9

Suppose foreign exchange markets anticipate a devaluation for country A.Further assume that policy makers in country A will continue to fix its nominal exchange rate.In order to peg the currency at its original level,which of the following must occur?

Accepted Answer

A)  increase the domestic interest rate
B)  increase the domestic price level
C)  convince trading partners to raise their interest rates
D)  all of the above
E)  none of the above

Question 10

After continuing crises in 1993,the EMS countries

Accepted Answer

A)  agreed to entirely abandon the system.
B)  stood firm,refusing to adjust central parities.
C)  narrowed the band of allowable fluctuations around central parities.
D)  removed France from its leading role in the system.
E)  widened the band of allowable fluctuations around central parities.

Question 11

First,briefly explain why the AD curve is downward sloping in a closed economy.Second,briefly explain why the AD curve is downward sloping in an open economy under fixed exchange rates.And finally,briefly compare the size of the slopes of the two AD curves.

Accepted Answer

The answer of First,briefly explain why the AD curve is...

Question 12

If the exchange rate between two countries is expected to remain fixed at its current rate,then

Accepted Answer

A)  output growth rates must be equal in the two countries.
B)  price levels must be equal in the two countries.
C)  inflation rates must be equal in the two countries.
D)  nominal interest rates must be equal in the two countries.
E)  none of the above

Question 13

Suppose a country is perceived to have an overvalued real exchange rate does not devalue.Which of the following would we expect to occur over time?

Accepted Answer

A)  a reduction in its price level
B)  a real depreciation of its currency
C)  a reduction in its trade surplus
D)  all of the above
E)  none of the above

Question 14

Suppose a country that has been pegging its currency is faced with a situation where financial market participants now expect some future devaluation.In such a situation,we would generally expect which of the following to occur?

Accepted Answer

A)  a reduction in the domestic interest rate.
B)  an announcement by the central bank that a large devaluation will occur in the near future.
C)  reduction in demand for the country's currency.
D)  all of the above
E)  none of the above

Question 15

In a fixed exchange rate regime,an increase in the price level will cause which of the following?

Accepted Answer

A)  a real appreciation and a leftward shift in the aggregate demand curve
B)  a real appreciation and no shift in the aggregate demand curve
C)  a real depreciation and a rightward shift in the aggregate demand curve
D)  a real depreciation and no shift in the aggregate demand curve
E)  no change in the real exchange rate,and no change in aggregate demand

Question 16

When policy makers decide to devalue the currency,such an action generally represents

Accepted Answer

A)  a decision to let the currency float.
B)  an increase in the pegged value of the domestic currency.
C)  a reduction in the foreign price level.
D)  a reduction in the domestic price level.
E)  none of the above

Question 17

Explain exchange rate crisis.

Accepted Answer

The answer of Explain exchange rate crisis....

Question 18

Policy makers can select from a number of different exchange rate regimes.One of those options is a "hard peg." Which of the following best represents a hard peg?

Accepted Answer

A)  a revaluation
B)  a currency board
C)  a flexible exchange rate regime
D)  the EMS
E)  none of the above

Question 19

In a fixed exchange rate regime,a reduction in the price level will cause which of the following?

Accepted Answer