Deck 20: Flexible Versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy Coordination

Question 1

International macroeconomic policy coordination has become more useful and essential in recent decades because:

A)the interdependence among countries has increased
B)the volume of trade has grown more rapidly than GNP
C)of the large increase in international capital flows
D)all of the above

Answer 1

D

Question 2

Price discipline is:

A)greater under a fixed than under a flexible exchange rate system
B)greater under a flexible than under a fixed exchange rate system
C)about the same under a fixed as under a flexible exchange rate system
D)is unrelated to the type of exchange rate system

Answer 2

A

Question 3

The formation of an optimum currency area is more likely to be beneficial:

A)the smaller is the mobility of resource among the various nations of the optimum currency area
B)the smaller are the structural similarities of member nations
C)the more willing are member nations to closely coordinate their fiscal,monetary, and other policies
D)all of the above

Answer 3

C

Question 4

Which of the following statements is correct with respect to flexible exchange rates?

A)they insulate the domestic economy from external shocks much more than fixed exchange rates
B)they are particularly attractive to nations subject to large external shocks
C)they provide less stability to an open economy subject to large internal shocks
D)all of the above

Question 5

Flexible exchange rates:

A)enhance the effectiveness of fiscal policy
B)reduce the effectiveness of fiscal policy
C)enhance the effectiveness of monetary policy
D)reduce the effectiveness of monetary policy

Question 6

The European Monetary System is or resembles a:

A)fixed exchange rate system
B)a managed exchange rate system
C)a crawling peg system
D)a freely flexible exchange rate system

Question 7

A fixed exchange rate system without a band of allowed fluctuation would require the nation's monetary authorities to intervene in the foreign exchange market:

A)never
B)seldom
C)constantly
D)we cannot say

Question 8

Under a flexible as compared to a fixed exchange rate system:

A)a nation can more easily achieve its desired inflation-unemployment tradeoff
B)it is more difficult for a nation to achieve its desired inflation-unemployment tradeoff
C)it is more difficult for a nation to achieve internal balance
D)it is more difficult for a nation to achieve external balance

Question 9

The policy of intervention in the foreign exchange market to smooth out short-run fluctuations in exchange rates is called:

A)crawling peg
B)adjustable peg
C)leaning against the wind
D)managed float

Question 10

Most economists believe that under "normal conditions" speculation:

A)is stabilizing
B)is destabilizing
C)is neither stabilizing nor destabilizing
D)seldom occurs

Question 11

The European Monetary Union:

A)has a common currency
B)has a single central bank
C)conducts a common monetary policy
D)all of the above

Question 12

Everything else being the same,the volume of trade is likely to be:

A)larger under a flexible than under a fixed exchange rate system
B)larger under a fixed than under a flexible exchange rate system
C)equal under a flexible and fixed exchange rate system
D)any of the above

Question 13

An alleged advantage of flexible over fixed exchange rates is:

A)market efficiency
B)stabilizing speculation
C)price discipline
D)all of the above

Question 14

The policy of changing par values by small preannounced amounts at frequent intervals until the equilibrium exchange rate is reached is called:

A)crawling peg
B)adjustable peg
C)managed float
D)dirty float

Question 15

If the band of allowed fluctuation under a fixed exchange rate system is made very wide,the system will resemble:

A)a flexible exchange rate system
B)the gold standard
C)an adjustable peg
D)a crawling peg