Question 1

The rise in the value of the dollar between 1980 and 1985 occurred when the United States was running a large and growing trade deficit.Explain the factors that led to this rise.

Accepted Answer

The rise in the value of the dollar betw...

Question 2

All International Monetary Fund loan packages come with conditions attached.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following refers to the gold standard?

Accepted Answer

A)   Pegging currencies to gold and guaranteeing convertibility
B)   Conducting international trade by physically exchanging gold
C)   The most valuable currency in the world at any given point in time
D)   The common global standard of gold quality to be maintained
E)   The quality of merchandise to be maintained for it to be exportableF) B) and D)
G) All of the above

Question 4

Under the U.S.macroeconomic policy package of 1965-1968,President Lyndon Johnson backed an increase in U.S.government spending that was financed by an increase in the money supply.This resulted in _____.

Accepted Answer

A)   increased exports
B)   a rise in price inflation
C)   increased taxes
D)   a positive trade balance
E)   increase in the worth of currencyF) A) and C)
G) A) and E)

Question 5

Which of the following is true of monetary contraction in a fixed exchange rate system?

Accepted Answer

A)   It requires low interest rates.
B)   It increases the demand for money.
C)   It puts downward pressure on a fixed exchange rate.
D)   It leads to an inflow of money from abroad.
E)   It can lead to high price inflation.F) A) and D)
G) C) and D)

Question 6

Briefly describe the pegged exchange rate regime.

Accepted Answer

Under a pegged exchange rate regime,a co...

Question 7

The system of adjustable parities allowed for the devaluation of a country's currency by more than 10 percent if the International Monetary Fund (IMF) agreed that a:

Accepted Answer

A)   country was in a trade surplus with the other member countries.
B)   country's balance of payments was in "fundamental disequilibrium."
C)   country had achieved balance-of-trade equilibrium.
D)   country's imports were lower than its exports.
E)   country was facing price inflation.F) B) and E)
G) A) and B)

Question 8

According to the Bretton Woods agreement,if a currency became too weak to defend,a devaluation of up to 10 percent would be allowed without any formal approval by the International Monetary Fund.

Accepted Answer

A) True 
 B)False

Question 9

In comparison to a floating exchange rate regime,a fixed exchange rate system is characterized by:

Accepted Answer

A)   smoother trade balance adjustments.
B)   increased destabilizing effects of exchange rate speculation.
C)   greater autonomy in terms of monetary policy.
D)   higher monetary discipline.
E)   greater exchange rate uncertainty and volatility.F) B) and C)
G) D) and E)

Question 10

In terms of speculation,describe the arguments for a fixed exchange rate system.

Accepted Answer

Critics of a floating exchange rate regi...

Question 11

The fall in the value of the U.S.dollar between 1985 and 1988 was caused by:

Accepted Answer

A)   the economic growth in the developed countries of Europe.
B)   a fall in prices of exported U.S. goods.
C)   a trade surplus in the U.S. during the previous years.
D)   a combination of government intervention and market forces.
E)   the protectionism measures adopted by the European countries.F) C) and D)
G) A) and E)

Question 12

How does a country that introduces a currency board make its commitment to converting its domestic currency on demand into another currency at a fixed exchange rate credible?

Accepted Answer

A)   By borrowing funds from the International Monetary Fund and the World Bank
B)   By maintaining a trade surplus with the foreign countries
C)   By holding foreign currency reserves equal at the fixed exchange rate to at least 100 percent of the domestic currency issued
D)   By importing more goods from foreign countries than it exports
E)   By printing foreign currenciesF) None of the above
G) B) and D)

Question 13

According to the agreement reached between the International Monetary Fund and the South Korean government in 1997,in return for funding,the South Koreans were required to:

Accepted Answer

A)   adopt communist ideologies.
B)   reduce their imports by enforcing restrictive import licensing.
C)   open their economy to greater foreign competition.
D)   oppose the ideologies of the World Trade Organization.
E)   engage in competitive currency devaluation.F) B) and D)
G) A) and E)

Question 14

Which of the following holds true for a pegged exchange rate system?

Accepted Answer

A)   Adopting a pegged exchange rate regime increases inflationary pressures in a country.
B)   It is necessary for a country whose currency is chosen for the peg to pursue a sound monetary policy.
C)   Pegged exchange rates are popular among many of the world's largest and developed nations.
D)   The value of a pegged currency falls when the reference currency rises in value.
E)   It is similar to a floating exchange rate system rather than a fixed system.F) D) and E)
G) A) and C)

Question 15

Which of the following is an argument for a fixed exchange rate system?

Accepted Answer

A)   Governments can contract their money supply without worrying about the need to maintain parity.
B)   Trade balance adjustments do not require the intervention of the International Monetary Fund.
C)   It ensures that governments do not expand the monetary supply too rapidly, thus causing high price inflation.
D)   Speculations in exchange rates boost exports and reduce imports.
E)   Each country should be allowed to choose its own inflation rate.F) A) and E)
G) A) and C)

Question 16

The forward exchange market is an accurate predictor of future exchange rates.

Accepted Answer

A) True 
 B)False

Question 17

Under the fixed exchange rate system,the dollar could be devalued only if all countries agreed to simultaneously revalue against the dollar.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following was an announcement made by U.S.President Nixon to enable the devaluation of the dollar during the increase in inflation in 1971 in the United States?

Accepted Answer

A)   The IMF member countries would adopt the gold standard to fix exchange rates.
B)   The United States would no longer support the World Bank.
C)   A new 10 percent tax would be charged on U.S. exports.
D)   The dollar was no longer convertible into gold.
E)   German deutsche marks would be the new reference currency.F) None of the above
G) B) and C)

Question 19

_____ arises when people behave recklessly because they know they will be saved if things go wrong.

Accepted Answer

A)   Systemic risk
B)   Moral hazard
C)   Ethical dilemma
D)   Tragedy of the commons
E)   Risk compensationF) B) and E)
G) C) and D)

Question 20

Jade,a working professional,began driving rashly ever since she got her car insured against damage.She believed that the insurance claim would cover her in case of any accidents.Jade's behavior is due to a situation known as _____.

Accepted Answer

A)   cognitive dissonance
B)   conflict of interest
C)   systemic risk
D)   moral hazard
E)   tragedy of the commonsF) A) and E)
G) A) and C)

Exam 11: The International Monetary System

In terms of speculation,describe the arguments for a fixed exchange rate system.

Correct AnswerverifiedCritics of a floating exchange rate regi...View AnswerShow Answer

The forward exchange market is an accurate predictor of future exchange rates.

Correct AnswerverifiedShow Answer

How does a country that introduces a currency board make its commitment to converting its domestic currency on demand into another currency at a fixed exchange rate credible?

Correct AnswerverifiedShow Answer

The system of adjustable parities allowed for the devaluation of a country's currency by more than 10 percent if the International Monetary Fund (IMF) agreed that a:

Correct AnswerverifiedShow Answer

All International Monetary Fund loan packages come with conditions attached.

Correct AnswerverifiedShow Answer

According to the Bretton Woods agreement,if a currency became too weak to defend,a devaluation of up to 10 percent would be allowed without any formal approval by the International Monetary Fund.

Correct AnswerverifiedShow Answer

Jade,a working professional,began driving rashly ever since she got her car insured against damage.She believed that the insurance claim would cover her in case of any accidents.Jade's behavior is due to a situation known as _____.

Correct AnswerverifiedShow Answer

Which of the following was an announcement made by U.S.President Nixon to enable the devaluation of the dollar during the increase in inflation in 1971 in the United States?

Correct AnswerverifiedShow Answer

Which of the following refers to the gold standard?

Correct AnswerverifiedShow Answer

According to the agreement reached between the International Monetary Fund and the South Korean government in 1997,in return for funding,the South Koreans were required to:

Correct AnswerverifiedShow Answer

Which of the following is true of monetary contraction in a fixed exchange rate system?

Correct AnswerverifiedShow Answer

The fall in the value of the U.S.dollar between 1985 and 1988 was caused by:

Correct AnswerverifiedShow Answer

Which of the following holds true for a pegged exchange rate system?

Correct AnswerverifiedShow Answer

Under the U.S.macroeconomic policy package of 1965-1968,President Lyndon Johnson backed an increase in U.S.government spending that was financed by an increase in the money supply.This resulted in _____.

Correct AnswerverifiedShow Answer

In comparison to a floating exchange rate regime,a fixed exchange rate system is characterized by:

Correct AnswerverifiedShow Answer

The rise in the value of the dollar between 1980 and 1985 occurred when the United States was running a large and growing trade deficit.Explain the factors that led to this rise.

Correct AnswerverifiedThe rise in the value of the dollar betw...View AnswerShow Answer

_____ arises when people behave recklessly because they know they will be saved if things go wrong.

Correct AnswerverifiedShow Answer

Briefly describe the pegged exchange rate regime.

Correct AnswerverifiedUnder a pegged exchange rate regime,a co...View AnswerShow Answer

Which of the following is an argument for a fixed exchange rate system?

Correct AnswerverifiedShow Answer

Under the fixed exchange rate system,the dollar could be devalued only if all countries agreed to simultaneously revalue against the dollar.

Correct AnswerverifiedShow Answer

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Critics of a floating exchange rate regi...
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The rise in the value of the dollar betw...
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Under a pegged exchange rate regime,a co...
View Answer

Correct Answer
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