Deck 3: The International Monetary System

Question 1

is the name of the policy aimed to lessen the need to monetize a government's budget deficit by reducing the expenditures often with the unintended outcome of increased unemployment?

A)fixed-rate system
B)managed float
C)target-zone arrangement
D)austerity

Answer 1

D

Question 2

is the name for the strategy used by governments where participants will adjust their current and expected future currency needs as price levels change,interest differentials appear,and economic growth occurs?

A)free float
B)clean float
C)managed float
D)dirty float

Answer 2

A

Question 3

The fall of the dollar beginning in 1985 can be attributed to

A)the growing U.S.budget deficit
B)the large U.S.trade deficit
C)rapid U.S.economic growth
D)the slowdown in U.S.economic growth relative to growth overseas

Answer 3

D

Question 4

________ is an exchange rate system that is relatively free from central bank and other government-type interventions.

A)managed float
B)clean float
C)dirty float
D)target-zone arrangement

Question 5

government intervention attempts to reduce for exporters and importers the uncertainty caused by disruptive exchange rate changes for the short and medium term,it is referred to as _________.

A)smoothing out daily fluctuations
B)leaning against the wind
C)unofficial pegging
D)a dirty float

Question 6

________ is nonconvertible paper money backed only by faith in the monetary authorities.

A)Specie
B)Fiat money
C)Seignorage
D)Par value

Question 7

Under a _________,countries adjust their national economic policies to maintain their exchange rates within a specific margin around agreed-upon,fixed central exchange rates.

A)managed float
B)'beggar-thy-neighbor" devaluation
C)dirty float
D)target-zone agreement

Question 8

The gold standard was dissolved in 1973 because

A)the U.S.printed too many dollars to maintain gold at $35/oz
B)exchange markets preferred a floating rate system
C)high interest rates raised the cost of holding gold
D)some countries preferred to hold gold instead of dollars

Question 9

A weak peso is most likely to cause

A)added employment and inflation in Mexico
B)less unemployment but more inflation in Mexico
C)more unemployment but less inflation in Mexico
D)less unemployment and less inflation in Mexico

Question 10

current exchange rate system can best be characterized as a ___ system.

A)free float
B)managed float
C)fixed?rate
D)hybrid

Question 11

A gold standard ensures a long?run tendency toward price stability because

A)gold is desirable
B)gold is durable and storable
C)the cost of producing an ounce of gold stays relatively constant overtime
D)gold supply is directly related to consumer satisfaction

Question 12

Which of the following produced a valuable lesson about exchange-rate stability and target-zone arrangements?

A)European Monetary System
B)European Community
C)European Common Market
D)European Union

Question 13

Managed floats do NOT fall into which of the following categories of central bank intervention?

A)smoothing out daily fluctuations
B)leaning against the wind
C)unofficial pegging
D)letting market forces set exchange rates

Question 14

What is the name given to profits earned by a central bank from money creation?

A)seigniorage
B)interest arbitrage
C)moral hazard
D)fiat money

Question 15

The Bretton Woods system fell apart because

A)of the oil crisis
B)U.S.monetary policy was too expansionary
C)the United States ran a large trade deficit
D)the United States no longer supported a pegged gold standard

Question 16

The rising dollar in the early 1980s can be attributed to

A)high real interest rates in the United States
B)improved investment prospects in the United States
C)the growing U.S.budget deficit
D)a and b only

Question 17

The characteristic of gold that is most important to the success of a gold standard is that it is

A)portable
B)storable
C)easily standardized
D)expensive to produce as well as universally acceptable

Question 18

The European Monetary System is best described as a

A)clean float
B)target?zone arrangement
C)dirty float
D)managed float

Question 19

Under the classic gold standard,if prices began rising in the U.S.

A)the dollar value of the pound would rise
B)the dollar value of the pound would fall
C)the U.S.would begin running a balance of trade surplus
D)gold would flow out of the U.S.and the U.S.money supply would drop

Question 20

Bretton Woods system

A)ended in 1971
B)ended in 1939 when World War II began
C)is currently the basis for the international monetary system
D)is currently in use only by the major industrial nations

Question 21

Underlying the emerging markets currency crises,there is a fundamental conflict among policy objectives that the target nations have failed to resolve.Which one of the following is NOT in conflict?

A)IMF bailouts
B)fixed exchange rates
C)independent domestic monetary policy
D)free capital movement

Question 22

Under which one of the following would a country that followed policies leading to a lower inflation rate than that experienced by its trading partners would come under pressure to expand its money supply?

A)fixed-rate currency system
B)freely-floating currency system
C)managed float
D)currency board

Question 23

Under a fixed?rate system,a country that followed policies leading to a lower inflation rate than that experienced by its trading partners would

A)come under pressure to expand its money supply
B)restrict the growth of its money supply
C)experience a balance?of?payments deficit
D)be forced to buy its currency in the foreign exchange market

Question 24

In a fixed?rate system central banks would NOT maintain currency values by

A)increasing the money supplies of nations with overvalued currencies
B)boosting the money supplies of nations with undervalued currencies
C)buying up overvalued currencies in the foreign exchange market
D)selling undervalued currencies in the foreign exchange market

Question 25

In order to boost the value of the DM relative to the dollar

A)the Fed should sell dollars for DM and the Bundesbank should buy DM with dollars
B)the Fed should sell dollars for DM and the Bundesbank should buy dollars with DM
C)the Fed should sell DM for dollars and the Bundesbank should sell dollars for DM
D)the Fed should sell DM for dollars and the Bundesbank should buy DM with dollars

Question 26

Calls for a new gold standard reflect

A)fundamental distrust of government's willingness to maintain the integrity of fiat money
B)a general willingness to accept fiat money
C)a short memory of what actually transpired under the gold standard
D)the durability and desirability of gold

Question 27

Under the gold standard

A)price levels rose dramatically
B)price levels stayed constant over time
C)the long?run stability of the price level includes alternating periods of inflation and deflation
D)fiat money is more valuable

Question 28

Under a fixed?rate system,a country that followed policies that would lead to a higher rate of inflation than that experienced by its trading partners would

A)experience a balance?of?payments surplus as its goods became more expensive
B)see an decrease in the supply of its currency on the foreign exchange markets
C)find its currency subject to upward pressure
D)experience a balance?of?payments deficit as its goods became more expensive

Question 29

Governments intervene in the foreign exchange markets for all of the following EXCEPT to

A)earn foreign exchange
B)reduce economic uncertainty
C)improve the nation's export competitiveness
D)reduce inflation

Question 30

Under a fixed?rate system,which of the following four alternatives to devaluation is most likely to succeed?

A)foreign borrowing
B)austerity
C)wage and price controls
D)exchange controls

Question 31

Assume you are a critic of the World Bank.Which one of the following would NOT be one of your criticisms?

A)World Bank projects do not come under the scrutiny of the global financial markets.
B)The Bank should move its lending operations out of China.
C)The Bank is financing projects that encourage governments to enact changes that make countries more attractive to private investors.
D)The Bank is funding projects to countries without giving them any incentive to change inefficient operations in the economy.