Question 1

Governments prefer to avoid excessive current account surpluses because

Accepted Answer

A)  the returns to domestic savings are more difficult to tax than those on assets abroad.
B)  an addition to the home capital stock may increase domestic unemployment and therefore lead to higher national income.
C)  foreign investment in one firm may have beneficial technological spillover effects on other foreign producers that the investing firm does not capture.
D)  an addition to the home capital stock may reduce domestic unemployment and therefore lead to higher national income.
E)  domestic savings increase with more investment abroad.F) D) and E)
G) B) and E)

Question 2

The "rules of the game" under the gold standard can best be described as which of the following:

Accepted Answer

A)  selling domestic assets in a deficit and buying assets in a surplus.
B)  slowing down the automatic adjustments processes inherent in the gold standard.
C)  selling domestic assets in order to accumulate gold.
D)  selling foreign assets in a deficit and buying foreign assets in a surplus.
E)  selling domestic assets in a surplus.F) A) and E)
G) None of the above

Question 3

Coordination of economic policies among nations is a prisoner's ________ because all countries will be better off if they ________.

Accepted Answer

A)  dilemma;cooperate
B)  conundrum;cooperate
C)  sentence;compete
D)  screed;compete
E)  quandary;colludeF) B) and C)
G) None of the above

Question 4

An attempt by a central bank to alter the money supply by buying or selling domestic assets

Accepted Answer

A)  will leave both domestic money supply and foreign reserves unchanged.
B)  will cause an offsetting change in aggregate demand.
C)  will lead to a rise in domestic employment and output.
D)  will lead to a decrease in domestic employment and output.
E)  will cause an offsetting change in foreign reserves and leave the domestic money supply unchanged.F) D) and E)
G) B) and E)

Question 5

A country is said to be in balance of payments equilibrium,when the sum of its current and its

Accepted Answer

A)  non-reserved capital accounts equals zero.
B)  reserved capital accounts equals zero.
C)  non-reserved capital accounts equals to the surplus in the capital account.
D)  non-reserved capital accounts equals to the deficit in the capital account.
E)  non-reserved capital accounts is higher than the total capital account balance.F) C) and D)
G) None of the above

Question 6

Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?

Accepted Answer

A)  exchange rate stability
B)  restrictions on international capital movements
C)  tariffs and subsidies
D)  restrictions on the migration of labor
E)  global inflationF) C) and D)
G) A) and B)

Question 7

Refer to the graph below,which shows the effect of ________ on the home economy.

Accepted Answer

A)  foreign inflation
B)  domestic inflation
C)  foreign deflation
D)  domestic recession
E)  foreign recessionF) B) and E)
G) A) and E)

Question 8

Explain how a country with a current account deficit is a ripe candidate for currency devaluation.

Accepted Answer

If,for example,Great Britain had a curre...

Question 9

What are the outcomes of the following games,assuming the max-min criteria is used?

Accepted Answer

There are two equilibria in th...

Question 10

An expenditure-changing policy

Accepted Answer

A)  alters the direction of the economy's total demand for goods and services.
B)  alters the level of the economy's total demand for goods and services.
C)  has no effect on aggregate demand.
D)  is the same thing as an expenditure-switching policy.
E)  affects aggregate supply but not aggregate demand.F) C) and E)
G) None of the above

Question 11

-Refer to the above figure.Use the DD-AA model to examine and compare the response of an economy under fixed and floating exchange rate to a temporary fall in foreign demand for its exports.

Accepted Answer

The DD curve shifts to the left.When the...

Question 12

Economic experience since 1973 indicates that,under floating exchange rates

Accepted Answer

A)  large and persistent departures from external balance were not prevented.
B)  large and persistent departures from external balance were prevented.
C)  changes in exchange rates failed to act as automatic stabilizers.
D)  reduced monetary policy autonomy.
E)  monetary policy autonomy was protected.F) D) and E)
G) C) and D)

Question 13

Which of the following is NOT a result of a temporary fall in foreign demand on one country's exports under floating exchange rate?

Accepted Answer

A)  The DD curve shifts to the left due to reduction of aggregate demand.
B)  The AA curve shifts downwards due to reduction of money supply.
C)  a fall in aggregate output
D)  depreciation in home country's currency
E)  a fall in the home interest rateF) B) and C)
G) All of the above

Question 14

-Refer to the above figure.Use the DD-AA model to examine and compare the response of an economy under fixed and floating exchange rate to a permanent fall in foreign demand for its exports.

Accepted Answer

The DD curve shifts to the left.Under fl...

Question 15

Which one of the following statements is TRUE?

Accepted Answer

A)  By devaluing its currency,that is,by lowering the domestic currency price of foreign currency,a country can insulate itself completely from an inflationary increase in foreign prices.
B)  By revaluing its currency,that is,by increasing the domestic currency price of foreign currency,a country can insulate itself completely from an inflationary increase in foreign prices.
C)  By revaluing its currency,that is,by lowering the domestic currency price of foreign currency,a country cannot insulate itself completely from an inflationary increase in foreign prices.
D)  By revaluing its currency,that is,by lowering the domestic currency price of foreign currency,a country can insulate itself completely from an inflationary increase in foreign prices.
E)  By revaluing its currency,that is,by lowering the domestic currency price of foreign currency,a country cannot insulate itself completely from a harmful decrease in foreign prices.F) C) and D)
G) B) and D)

Question 16

Inflation can occur under conditions of full employment

Accepted Answer

A)  only if the central bank continues to inject money into the economy and the agents' expectations of inflation are supported by the bank's activities.
B)  only if the central bank continues to inject money into the economy.
C)  only if the central bank continues to withdraw money from the economy.
D)  only if the central bank continues to inject money into the economy and all agents expect that inflation will not occur.
E)  only if the central bank fails to inject money into the economy.F) B) and D)
G) None of the above

Question 17

Which one of the following statements is TRUE?

Accepted Answer

A)  Countries where investment is relatively productive should be net importers of current output.
B)  Countries where investment is relatively unproductive should be net importers of current output.
C)  Countries where investment is relatively productive should be net exporters of current output.
D)  Countries where investment is relatively productive should not export or import current output.
E)  Countries where investment is relatively unproductive should invest at home.F) B) and E)
G) B) and C)

Question 18

Which of the two features of the IMF Articles of Agreement helped promote flexibility in external adjustment?

Accepted Answer

A)  IMF members helped countries maintain full employment.
B)  IMF allowed countries to attain internal balance.
C)  New countries would enter the agreement if they fixed their exchange rate.
D)  IMF members contributed their currency to form a pool of resources that IMF could lend to countries in need and parities in the exchange rate against the dollar could be adjusted with agreement of IMF.
E)  IMF members argued against the use of floating exchange rates.F) B) and E)
G) A) and E)

Question 19

The dollar of the United States became the postwar world's key currency because of all EXCEPT

Accepted Answer

A)  the early convertibility of the U.S.dollar in 1945.
B)  the special position of the dollar under the Bretton Woods system.
C)  the strength of the American economy relative to the devastated economies of Europe and Japan.
D)  central banks naturally found it advantageous to hold their international reserves in the form of interest-bearing dollar assets.
E)  the ease of transporting U.S.dollars compared with other currencies.F) A) and B)
G) D) and E)

Question 20

Which of the following is NOT a result of a permanent fall in foreign demand on one country's exports under floating exchange rate?

Accepted Answer

A)  The DD curve shifts to the left due to reduction of aggregate demand.
B)  The AA curve shifts upwards due to the increased expected long-run exchange rate.
C)  a reduction in output by a smaller degree compared to temporary fall in demand
D)  depreciation in home country's currency
E)  a raised level of unemploymentF) A) and B)
G) C) and D)

Exam 19: International Monetary Systems: an Historical Overview

-Refer to the above figure.Use the DD-AA model to examine and compare the response of an economy under fixed and floating exchange rate to a permanent fall in foreign demand for its exports.

Correct AnswerverifiedThe DD curve shifts to the left.Under fl...View AnswerShow Answer

-Refer to the above figure.Use the DD-AA model to examine and compare the response of an economy under fixed and floating exchange rate to a temporary fall in foreign demand for its exports.

Correct AnswerverifiedThe DD curve shifts to the left.When the...View AnswerShow Answer

A country is said to be in balance of payments equilibrium,when the sum of its current and its

Correct AnswerverifiedShow Answer

Inflation can occur under conditions of full employment

Correct AnswerverifiedShow Answer

Refer to the graph below,which shows the effect of ________ on the home economy.

Correct AnswerverifiedShow Answer

Economic experience since 1973 indicates that,under floating exchange rates

Correct AnswerverifiedShow Answer

An attempt by a central bank to alter the money supply by buying or selling domestic assets

Correct AnswerverifiedShow Answer

Which one of the following statements is TRUE?

Correct AnswerverifiedShow Answer

The "rules of the game" under the gold standard can best be described as which of the following:

Correct AnswerverifiedShow Answer

Coordination of economic policies among nations is a prisoner's ________ because all countries will be better off if they ________.

Correct AnswerverifiedShow Answer

Which of the following is NOT a result of a permanent fall in foreign demand on one country's exports under floating exchange rate?

Correct AnswerverifiedShow Answer

Which of the two features of the IMF Articles of Agreement helped promote flexibility in external adjustment?

Correct AnswerverifiedShow Answer

Governments prefer to avoid excessive current account surpluses because

Correct AnswerverifiedShow Answer

The dollar of the United States became the postwar world's key currency because of all EXCEPT

Correct AnswerverifiedShow Answer

What are the outcomes of the following games,assuming the max-min criteria is used?

Correct AnswerverifiedThere are two equilibria in th...View AnswerShow Answer

An expenditure-changing policy

Correct AnswerverifiedShow Answer

Which one of the following statements is TRUE?

Correct AnswerverifiedShow Answer

Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?

Correct AnswerverifiedShow Answer

Explain how a country with a current account deficit is a ripe candidate for currency devaluation.

Correct AnswerverifiedIf,for example,Great Britain had a curre...View AnswerShow Answer

Which of the following is NOT a result of a temporary fall in foreign demand on one country's exports under floating exchange rate?

Correct AnswerverifiedShow Answer

Correct Answer
verified
The DD curve shifts to the left.Under fl...
View Answer

Correct Answer
verified
The DD curve shifts to the left.When the...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Coordination of economic policies among nations is a prisoner's because all countries will be better off if they .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
There are two equilibria in th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If,for example,Great Britain had a curre...
View Answer

Correct Answer
verified