Deck 11: Cooperation, conflict and Crisis in the Contemporary International Monetary System

Question 1

According to Oatley,governments' reluctance to alter macroeconomic policies in order to reduce current-account imbalances ultimately sparked

A) the decision to return to fixed exchange rates.
B) the decision to use floating exchange rates.
C) the great financial crisis of 2007-2009.
D) a glut of US manufacturing exports.
E) China's policy of pegging the renminbi (RMB) to the dollar.

Answer 1

C

Question 2

By 1987,the U.S.current account deficit had grown to

A) $ 50 billion.
B) $ 75 billion.
C) $ 100 billion.
D) $ 125 billion
E) $ 150 billion

Answer 2

E

Question 3

The current account imbalances in the United States during the Reagan administration were due to

A) cutting taxes and military spending.
B) raising taxes and military spending.
C) cutting taxes and raising military spending.
D) raising taxes and cutting military spending.
E) cutting taxes and greater exports.

Answer 3

C

Question 4

A change in fiscal policy will affect the current account so long as

A) neither private savings nor investment responds to the change in fiscal policy.
B) both private savings and investment responds to the change in fiscal policy.
C) private savings does respond but investment does not respond to the change in fiscal policy.
D) private savings does not respond but investment does respond to the change in fiscal policy.
E) there is an investment boom caused by high interest rates.

Question 5

In the international monetary politics of the 1980s among the advanced industrial countries there were many disagreements because of the impact of domestic politics on macroeconomic policymaking.Essentially,according to Oatley,it came down to

A) the US wanting greater openness to American exports while these countries wanted the US to reduce its budget deficits.
B) the US wanting countries with trade surpluses to revalue their currency to make their exports more expensive while these countries wanted the US to reduce its budget deficits.
C) the US wanting burden of adjustment to be borne by countries with trade surpluses while these countries wanted the US to reduce its budget deficits.
D) the US being willing to reduce its budget deficits but Germany was unwilling to lower interest rates.
E) the US being willing to reduce its budget deficits but Japan was unwilling to be more open to US agricultural exports.

Question 6

In 2008 under Bush,US current-account deficits,as a share of American national income,were larger than those of the 1980s at

A) 3 % of GDP at their peak.
B) 4 % of GDP at their peak.
C) 5 % of GDP at their peak.
D) 6 % of GDP at their peak.
E) 7 % of GDP at their peak.

Question 7

Foreign government holdings of American government debt rose from approximately

A) $350 billion in 1999 to $1.3 trillion in 2008.
B) $500 billion in 1999 to $2.0 trillion in 2008.
C) $750 billion in 1999 to $2.5 trillion in 2008.
D) $1.5 trillion in 1999 to $3.0 trillion in 2008.
E) $750 billion in 1999 to $3.3 trillion in 2008.

Question 8

In 1985,in a compact known as the Plaza accord,the US,German,British,French and Japanese governments agreed to

A) increase the value of the dollar against the Japanese yen and the German mark by 10-12 percent.
B) reduce the value of the dollar against the Japanese yen and the German mark by 10-12 percent.
C) reduce the value of the dollar against the Japanese yen and the German mark by 7-8 percent.
D) reduce the value of the dollar against the Japanese yen and the British pound by 7-8 percent.
E) increase the value of the dollar against the Japanese yen and the German mark by 7-8 percent.

Question 9

From a postwar low in 1979,by 1985 the dollar had appreciated by about

A) 10%.
B) 20%.
C) 30%.
D) 50%.
E) 70%.

Question 10

In order to attract capital flows from current account surplus countries,the United States had to

A) maintain relatively low interest rates.
B) cut government spending.
C) lower taxes.
D) maintain relatively high interest rates.
E) weaken the value of the dollar.

Question 11

By the end of the 1980s,American foreign debt to the rest of the world had increased from

A) $ 140 billion to more than $ 1 trillion.
B) $ 440 billion to more than $ 2 trillion.
C) $ 200 billion to more than $ 3 trillion.
D) $ 350 billion to more than $ 2 trillion.
E) $ 750 billion to more than $ 2 trillion.

Question 12

In 1987,at a meeting in Paris,in a compact known as the Louvre accord,the US,German,British,French and Japanese governments agreed to strive to

A) stabilize exchange rates at their current values.
B) let the dollar to continue to appreciate.
C) let the Japanese yen and German mark to continue to appreciate.
D) let the dollar to continue to depreciate.
E) let the Japanese yen and German mark to continue to depreciate.

Question 13

The determination to set macroeconomic policy independent of foreign considerations has generated

A) small current-account imbalances.
B) small cross-border capital flows.
C) substantial financial stability.
D) calm exchange rate movements.
E) episodes of financial instability.

Question 14

The massive use of credit default swaps

A) reduced the risk of nationwide collapse of real estate prices.
B) created mortgage-backed securities with different risks.
C) created a global savings glut.
D) reduced the risk of regional collapse of real estate prices.
E) allowed the Bush tax cuts of 2001.

Question 15

During the early 1980s protectionist pressure caused by the strength of the dollar led to policies that sought to

A) eliminate Japanese barriers to American imports and ending what was perceived to be unfair Japanese industrial policy.
B) eliminate Japanese barriers to American imports and promoting a stronger pro-import American industrial policy.
C) accept Japanese barriers to American imports and ending what was perceived to be unfair Japanese industrial policy.
D) eliminate Japanese barriers to American imports and accepting what was perceived to be unfair Japanese industrial policy.
E) eliminate American barriers to Japanese imports and ending what was perceived to be unfair Japanese industrial policy.

Question 16

After 1980,the largest current account deficit in the global economy was held by

A) United States.
B) Germany.
C) Japan.
D) United Kingdom.
E) China.

Question 17

In the past decade,the country with which the United States has had its largest bilateral trade deficit was

A) Mexico.
B) Canada.
C) Japan.
D) China.
E) Germany.

Question 18

Investment in residential real estate as a share of GDP in the US between 2000 and 2007

A) rose by 50%.
B) increased from 26% to 37%.
C) increased from 16% to 46%.
D) decreased from 6% to 29%
E) rose by 10%.

Question 19

On October 19,1987,the single largest one day drop (in percentage terms)in world stock markets since WW I,the US Dow Jones Industrial Index fell by

A) 6.3 %.
B) 9.4 %.
C) 15.2 %.
D) 18.5 %.
E) 22.6%.

Question 20

The ability to borrow large volumes at low interest rates credit conditions that typically generate

A) asset bubbles.
B) trade bubbles.
C) tax bubbles.
D) cash hoarding in advanced industrial countries.
E) manufacturing unemployment in advanced industrial countries.

Question 21

The Greek debt crisis has generated a discussion about

A) why Germans are so afraid of inflation.
B) why all EU countries are not members of the euro zone.
C) the future viability of the EMU.
D) levels of the VAT tax.
E) China as a source of funds for European bailouts.

Question 22

Under the EMS system,the burden of maintaining fixed exchange rates fell principally upon

A) countries with high inflation.
B) countries with low inflation.
C) counties with budget surpluses.
D) countries with low interest rates.
E) countries with low tax rates.

Question 23

China's emergence as a creditor country has placed an emerging market economy in the center of the international monetary system for the first time in its history

Question 24

In a compact known as the Plaza Accord in 1985,Germany,Britain,France,Italy and the United States consented to intervene in the foreign exchange markets whenever it appeared that the market was pushing the dollar up.

Question 25

The U.S. government's Toxic Asset Relief Program (TARP)in 2008 to purchase risky assets from the largest banks authorized more than

A) $300 billion.
B) $500 billion.
C) $700 billion.
D) $1.0 trillion.
E) $2.0 trillion.

Question 26

From its peak in 2002,the dollar has lost value steadily until,by 2010,it had returned to the value it held during much of the 1990s.

Question 27

Why did the U.S.international investment position stabilize after 2004 in spite of continued heavy borrowing?

Question 28

According to Oatley,analysts seemed to agree that the financial turbulence which included "Black Monday" (October 19,1987)was a direct market response to the evident inability of the United States and Germany to find a cooperative solution to global current account imbalances.

Question 29

The financial crisis of 2007-2009 acquired a global dimension

A) because Asian financial institutions purchased mortgage-backed securities in large quantities.
B) in spite of debt-service problems caused by leveraged buying.
C) because of government budget deficit politics in advanced countries.
D) because Japan, France, Italy and Germany experienced their own real estate bubble bursts.
E) because European financial institutions purchased mortgage-backed securities in large quantities often with borrowed money.

Question 30

The 1970s had seen relatively small current-account imbalances in the major industrial countries generally adjust quickly.

Question 31

Discuss and analyze the contention that the US-German public squabbles over currency values and interest rates were responsible for "Black Monday" - (October 19,1987)the largest single day loss in percentage terms since WWI.

Question 32

The cost of floating exchange rates is so small that European governments have had no problem in sacrificing domestic autonomy to stabilize exchange rates.

Question 33

Since the late 1970s,European governments have desired more stable intra-European exchange rates

A) in spite of the fact that exchange-rate costs are relatively inexpensive for most EU countries.
B) because the cost of floating in the EU is so high that European governments are more willing to sacrifice domestic autonomy.
C) because European governments are less willing to sacrifice domestic autonomy.
D) because EU governments were equally committed to fighting inflation.
E) because EU governments were required to maintain balanced budgets.

Question 34

Financial institutions that held mortgage-backed securities in large amounts only suffered small losses in the 2007-2009 real estate crisis.

Question 35

European governments attributed the U.S.current account deficit to the federal government budget deficit that emerged following the Bush tax cuts of 2001.

Question 36

Governments recently have found themselves in fundamentally different types of distributive conflicts than those that brought down the Bretton Woods system in the early 1970s.

Question 37

Capital flows from Japan and Germany financed the US current-account deficits in the 1980s.

Question 38

Explain and discuss the divergent macroeconomic policies of the U.S.,Japan and Germany in the 1980s.

Question 39

Discuss the issues and countries involved in the Plaza and Louvre Accords in mid 1980s.Were they successful?

Question 40

Discuss and explain the evolution of current-account imbalances between 1996 and 2010.How were they different than similar problems in the 1980s?

Question 41

Explain and discuss US Congressional contentions that China's policy of pegging the renminbi to the dollar constituted an unfair trade practice.

Question 42

Explain why there has been more cooperation than conflict in EU's exchange-rate system since the late 1970s.Will the Greek crisis destroy the EMU?

Question 43

Explain how conditions of low interest rates and favorable credit conditions created the asset bubble in US residential real estate which was at the heart of the great financial crisis of 2007-2009.

Question 44

Explain how the Bush Jr.administration attributed global imbalances to a "global savings glut".What were the Chinese and European rebuttals?

Question 45

How did governments and central banks respond to prevent the total collapse of the world financial system in 2007-2009?