Question 1

If a central bank does not want to see its currency rise in value,it may pursue ________ monetary policy to ________ the domestic interest rate,thereby weakening its currency.

Accepted Answer

When a central bank wants to weaken its currency, it can pursue an expansionary monetary policy, which involves lowering the domestic interest rate. Lowering interest rates can make the currency less attractive to foreign investors, who will then be less likely to buy the currency, thus causing its value to go down.

Question 2

Since the abandonment of the Bretton Woods system,balance of payments considerations have become ________ important,and exchange rate considerations ________ important in the conduct of monetary policy.

Accepted Answer

The Bretton Woods system tied exchange rates to gold, which meant that balance of payments considerations were more important. Since its abandonment, exchange rates have floated freely, which means that exchange rate considerations are more important in the conduct of monetary policy. Therefore, balance of payments considerations have become less important and exchange rate considerations have become more important.

Question 3

A central bank's attempt to prevent an appreciation of its currency can stimulate domestic inflation if the ________ of its currency leads to ________ international reserves which ________ the monetary base.

Accepted Answer

When a central bank sells its currency in the foreign exchange market, it reduces its international reserves. This, in turn, reduces the monetary base through a contraction in cash reserves for banks. As a result, there is less money available for banks to lend to customers. This reduction in the money supply can lead to an increase in interest rates, which can stimulate inflation. Therefore, a central bank's attempt to prevent an appreciation of its currency through a sale of its currency can stimulate domestic inflation if the sale leads to higher international reserves, which increases the monetary base.

Question 4

In response to the overvalued dollar in the early 1970s,the German Bundesbank bought dollars and sold marks to keep the exchange rate fixed,gaining international reserves.The huge purchase of international reserves meant that the German monetary base began to ________,leading to ________ growth in the German money supply.

Accepted Answer

The purchase of international reserves by the German Bundesbank led to an increase in the German monetary base. This increase in the monetary base would have led to a rapid growth in the German money supply, as more money could now be created and circulated in the economy. Hence, choice D is the best answer.

Question 5

The German central bank gained international reserves in the early 1970s because it sold ________ to prevent mark ________.

Accepted Answer

The answer of The German central bank gained international reserves...

Question 6

A central bank's attempt to prevent an appreciation of its currency can stimulate domestic inflation if the ________ of foreign currencies leads to ________ international reserves which ________ the monetary base.

Accepted Answer

When a central bank purchases foreign currencies to prevent its own currency from appreciating, it increases its international reserves. This action, in turn, increases the monetary base, which can stimulate domestic inflation.

Question 7

An advantage to exchange-rate targeting is it helps keep inflation under control by tying the inflation rate for ________ traded goods to what is found in the ________ country.

Accepted Answer

Exchange-rate targeting ties the inflation rate for internationally traded goods to what is found in the anchor country, which helps keep inflation under control. Therefore, choice C, which states "internationally;anchor", is the correct answer.

Question 8

Both France and the United Kingdom successfully used exchange-rate targeting to lower inflation in the late 1980s and early 1990s by tying the value of their currencies to the

Accepted Answer

France and the United Kingdom tied their currencies to the German mark.

Question 9

Under an exchange-rate targeting rule for monetary policy,a crawling peg

Accepted Answer

Under a crawling peg exchange-rate targeting rule, the domestic currency is allowed to depreciate at a steady rate. This is done so that inflation in the pegging country can be higher than that of the anchor country. This is because a higher rate of inflation in the pegging country would lead to a gradual depreciation of its currency, which would make its exports more competitive and help to reduce external imbalances.

Question 10

Under exchange-rate targeting,the central bank in the targeting country ________ lose the ability to pursue its own independent monetary policy and any shocks to the anchor country is ________ transmitted to the targeting country.

Accepted Answer

Under exchange-rate targeting, the central bank loses the ability to pursue its own independent monetary policy because it must align its policies with those of the anchor country to maintain the target exchange rate. Additionally, any shocks to the anchor country's economy are directly transmitted to the targeting country through the fixed exchange rate mechanism.

Question 11

If a central bank does not want to see its currency ________ in value,it may pursue contractionary monetary policy to raise the domestic interest rate,thereby ________ its currency.

Accepted Answer

Contractionary monetary policy, which involves raising interest rates, is typically used to reduce inflation and can lead to an appreciation of the currency. Higher interest rates attract foreign investors looking for higher returns, thus increasing demand for the currency and strengthening its value.

Question 12

If a central bank does not want to allow the domestic currency to appreciate,it will ________ international reserves by selling its currency,thereby ________ the monetary base and increasing the risk of higher inflation.

Accepted Answer

If a central bank does not want to allow the domestic currency to appreciate, it will acquire international reserves by selling its currency. This increases the supply of domestic currency in the market, which would increase the monetary base, and in turn increase the risk of higher inflation.

Question 13

Exchange-rate targeting allows a central bank to ________,thus this will ________ the probability of policy developing a time-inconsistency problem.

Accepted Answer

Exchange-rate targeting involves governing the central bank by a policy rule, which reduces the probability of developing a time-inconsistency problem compared to discretionary policy. Therefore, the best choice is A - be governed by a policy rule; decrease.

Question 14

If a central bank does not want to allow the domestic currency to depreciate,it will ________ international reserves by purchasing its currency,thereby ________ the monetary base and increasing the risk of higher unemployment.

Accepted Answer

When a central bank wants to prevent its domestic currency from depreciating, it sells international reserves to buy its own currency, which decreases the monetary base. This action can lead to higher unemployment due to tighter monetary conditions.

Question 15

A monetary policy strategy that uses a fixed exchange rate regime that ties the value of a currency to the currency of a large,low inflation country is called ________ targeting.

Accepted Answer

This type of monetary policy strategy is known as exchange-rate targeting because it aims to stabilize a country's exchange rate by tying its currency to that of a low inflation country. Currency and monetary targeting focus on other aspects of monetary policy, while inflation targeting aims to control inflation rather than exchange rates.

Question 16

In the early 1970s,the U.S.ran large balance of payments ________,causing an ________ dollar and an ________ German mark.

Accepted Answer

A balance of payments deficit means that the country is importing more goods and services than it is exporting, resulting in a net outflow of currency. This leads to a decline in the value of the currency, in this case, the U.S. dollar. An overvalued currency means that it is priced higher than its actual value in the market, while an undervalued currency means the opposite. Therefore, an undervalued German mark is a consequence of the overvalued U.S. dollar.

Question 17

If a central bank does not want to see its currency ________ in value,it may pursue expansionary monetary policy to lower the domestic interest rate,thereby ________ its currency.

Accepted Answer

The answer of If a central bank does not want...

Question 18

In response to the overvalued dollar in the early 1970s,the German Bundesbank bought ________ and sold ________ to keep the exchange rate fixed,gaining international reserves.

Accepted Answer

To maintain the fixed exchange rate, the German Bundesbank bought dollars and sold marks. This action was aimed at preventing the dollar from depreciating further against the mark, thereby increasing their international reserves in dollars.

Question 19

Which of the following is not an advantage to exchange-rate targeting?

Accepted Answer

Exchange-rate targeting does not inherently increase the accountability of policymakers, as it can lead to a loss of independent monetary policy and may not reflect domestic economic conditions.

Question 20

If a central bank does not want to see its currency fall in value,it may pursue ________ monetary policy to ________ the domestic interest rate,thereby strengthening its currency.

Accepted Answer

To prevent the currency from falling in value, the central bank would pursue a contractionary monetary policy, which involves raising the domestic interest rate. By making the currency more attractive to foreign investors, the central bank can strengthen its value. This is done by reducing the supply of money in circulation or by raising interest rates.

Quiz 18: The International Financial System

If a central bank does not want to see its currency rise in value,it may pursue monetary policy to the domestic interest rate,thereby weakening its currency.

Since the abandonment of the Bretton Woods system,balance of payments considerations have become important,and exchange rate considerations important in the conduct of monetary policy.

A central bank's attempt to prevent an appreciation of its currency can stimulate domestic inflation if the of its currency leads to international reserves which the monetary base.

The German central bank gained international reserves in the early 1970s because it sold to prevent mark .

A central bank's attempt to prevent an appreciation of its currency can stimulate domestic inflation if the of foreign currencies leads to international reserves which the monetary base.

An advantage to exchange-rate targeting is it helps keep inflation under control by tying the inflation rate for traded goods to what is found in the country.

Both France and the United Kingdom successfully used exchange-rate targeting to lower inflation in the late 1980s and early 1990s by tying the value of their currencies to the

Under an exchange-rate targeting rule for monetary policy,a crawling peg

Under exchange-rate targeting,the central bank in the targeting country lose the ability to pursue its own independent monetary policy and any shocks to the anchor country is transmitted to the targeting country.

If a central bank does not want to see its currency in value,it may pursue contractionary monetary policy to raise the domestic interest rate,thereby its currency.

If a central bank does not want to allow the domestic currency to appreciate,it will international reserves by selling its currency,thereby the monetary base and increasing the risk of higher inflation.

Exchange-rate targeting allows a central bank to ,thus this will the probability of policy developing a time-inconsistency problem.

If a central bank does not want to allow the domestic currency to depreciate,it will international reserves by purchasing its currency,thereby the monetary base and increasing the risk of higher unemployment.

A monetary policy strategy that uses a fixed exchange rate regime that ties the value of a currency to the currency of a large,low inflation country is called ________ targeting.

In the early 1970s,the U.S.ran large balance of payments ,causing an dollar and an German mark.

If a central bank does not want to see its currency in value,it may pursue expansionary monetary policy to lower the domestic interest rate,thereby its currency.

In response to the overvalued dollar in the early 1970s,the German Bundesbank bought and sold to keep the exchange rate fixed,gaining international reserves.

Which of the following is not an advantage to exchange-rate targeting?

If a central bank does not want to see its currency fall in value,it may pursue monetary policy to the domestic interest rate,thereby strengthening its currency.