Question 1

Managed floats are only effective in the long run.

Accepted Answer

Managed floats, also known as dirty floats, can be effective in the short term for addressing temporary imbalances or volatility in the currency market, but their effectiveness in the long run can be limited by market pressures and the need for substantial foreign exchange reserves to maintain the desired exchange rate level.

Question 2

If the Bank of Japan buys yen to prevent the yen from appreciating,

Accepted Answer

When the Bank of Japan buys yen to prevent the yen from appreciating, it is engaging in a managed float. This means the central bank intervenes in the foreign exchange market to manage the currency's value without committing to a fixed exchange rate.

Question 3

A managed float

Accepted Answer

A managed float is an exchange rate system in which currencies float against each other, but central banks intervene in the foreign exchange market to influence their value. The aim is to maintain a stable exchange rate, but it is not always successful.

Question 4

Under a managed float,a country's central bank

Accepted Answer

Under a managed float, a country's central bank buys or sells its currency in order to maintain a stable exchange rate. This means that they may intervene in the foreign exchange market by buying or selling their own currency in order to influence the exchange rate. The central bank will do this to prevent large fluctuations in the exchange rate, which can have negative effects on the country's economy.

Question 5

A fixed exchange rate

Accepted Answer

A fixed exchange rate is a declared rate that is maintained by central bank intervention in the foreign exchange market. This means that the central bank will buy or sell its currency in order to maintain the fixed rate.

Question 6

If a government runs a fixed exchange rate system and increases the dollar price of its currency,we say there has been a(n)

Accepted Answer

In a fixed exchange rate system, the government is responsible for maintaining a certain value for its currency relative to another currency or a basket of currencies. If the government increases the dollar price of its currency, it is performing a revaluation of its currency, meaning that the government is officially increasing the value of its currency in relation to the foreign currency it is pegged to. This is different from a depreciation or devaluation, which would involve a decrease in the value of the currency.

Question 7

Managed floats are

Accepted Answer

Managed floats are a system where the exchange rates are allowed to change based on the supply and demand in the market, but the central bank can intervene to prevent sudden and large changes. This is usually done in the short run to maintain stability in the exchange rates.

Question 8

To maintain a fixed exchange rate,a central bank

Accepted Answer

The answer of To maintain a fixed exchange rate,a central...

Question 9

If there is an excess supply of the domestic currency at a fixed exchange rate,

Accepted Answer

If there is an excess supply of the domestic currency at a fixed exchange rate, the central bank must buy up that excess supply or the exchange rate will fall. This is because the excess supply of the domestic currency will cause the demand for other currencies to increase, which will lead to a decrease in the value of the domestic currency relative to those other currencies. In order to maintain the fixed exchange rate, the central bank must therefore intervene in the foreign exchange market by buying up the excess supply of the domestic currency.

Question 10

The International Monetary Fund was established in part to help avoid foreign currency crises.

Accepted Answer

The IMF was established in 1944 with the goal of promoting international monetary cooperation and avoiding currency crises.

Question 11

Under a managed float,if U.S.GDP suddenly increased,which of the following actions would the Bank of England need to take in order to stop any movement in the dollar-pound exchange rate?

Accepted Answer

An increase in U.S. GDP could lead to an increased demand for British pounds as Americans buy more British goods. To stop the dollar-pound exchange rate from moving, the Bank of England would need to increase the supply of pounds in the foreign exchange market to counteract this increased demand. Selling British pounds for dollars achieves this by shifting the supply curve for pounds rightward, stabilizing the exchange rate.

Question 12

Under a managed float,

Accepted Answer

Under a managed float, a central bank intervenes in the foreign exchange market to stabilize its exchange rate. While the exchange rate is allowed to fluctuate, the central bank actively works to prevent rapid or extreme changes in the exchange rate through interventions, such as buying or selling foreign currency. The exchange rate is still ultimately determined by supply and demand, but the central bank seeks to manage those fluctuations within certain limits.

Question 13

Under a managed float,

Accepted Answer

Under a managed float, a central bank attempts to stabilize an exchange rate by buying or selling their currency on the foreign exchange market. This is done in order to prevent large fluctuations in the exchange rate, which can have negative effects on the economy. Currency traders buying low and selling high would be characteristic of a free floating exchange rate, not a managed float. National governments using fiscal policy to prevent inflation and managers allowing product prices to float in response to supply and demand shifts are not specifically related to the exchange rate or a managed float. Government attempts to harmonize tax policies are also not directly related to the exchange rate or a managed float.

Question 14

Under a managed float,if U.S.demand for British goods drops,which of the following actions would the Bank of England need to take in order to stop any movement in the dollar-pound exchange rate?

Accepted Answer

Under a managed float, the central bank may take actions to intervene in the foreign exchange market in order to stabilize the exchange rate. If U.S. demand for British goods drops, the demand for British pounds will also decrease, causing a depreciation in the pound. To prevent this movement, the Bank of England may buy British pounds for dollars, which will increase the demand for pounds and shift the demand curve for pounds to the right. This will help stabilize the exchange rate. Therefore, choice D (Buy British pounds for dollars in order to shift the demand curve for pounds rightward) is the best choice.

Question 15

A devaluation of a currency means that the exchange rate (price of that currency)has changed to a higher fixed rate.

Accepted Answer

A devaluation of a currency means that the exchange rate (price of that currency) has changed to a lower fixed rate, not a higher fixed rate.

Question 16

Moral hazard is a problem for the insurance industry.

Accepted Answer

Moral hazard refers to the tendency of a person to take greater risks when insured, knowing that the consequences of those risks will be borne by the insurer. In other words, the existence of insurance may lead people to behave differently than they would if they were not insured. This poses a challenge for the insurance industry, as it can result in higher payouts and increased costs.

Question 17

If the U.S.inflation rate is 3 percent annually and the Japanese inflation rate is 1 percent annually,by what percent would the dollar price of the yen need to change according to purchasing power parity?

Accepted Answer

According to the theory of purchasing power parity (PPP), the dollar price of the yen needs to appreciate by the difference in inflation rates, which is 2 percent (3 percent - 1 percent).

Question 18

If a country fixes its exchange rate below the equilibrium value,

Accepted Answer

The answer of If a country fixes its exchange rate...

Question 19

A devaluation of a currency means that the exchange rate (price of that currency)has changed to a lower fixed rate.

Accepted Answer

Devaluation refers to a deliberate reduction in the value of a currency relative to another currency or a standard, typically done by a government or central bank. This results in a lower fixed exchange rate, which means that the currency is now worth less in comparison to other currencies.

Question 20

If a country fixes its exchange rate below the equilibrium value,

Accepted Answer

The answer of If a country fixes its exchange rate...

Quiz 29: Exchange Rates and Macroeconomic Policy

Managed floats are only effective in the long run.

If the Bank of Japan buys yen to prevent the yen from appreciating,

A managed float

Under a managed float,a country's central bank

A fixed exchange rate

If a government runs a fixed exchange rate system and increases the dollar price of its currency,we say there has been a(n)

Managed floats are

To maintain a fixed exchange rate,a central bank

If there is an excess supply of the domestic currency at a fixed exchange rate,

The International Monetary Fund was established in part to help avoid foreign currency crises.

Under a managed float,if U.S.GDP suddenly increased,which of the following actions would the Bank of England need to take in order to stop any movement in the dollar-pound exchange rate?

Under a managed float,

Under a managed float,

Under a managed float,if U.S.demand for British goods drops,which of the following actions would the Bank of England need to take in order to stop any movement in the dollar-pound exchange rate?

A devaluation of a currency means that the exchange rate (price of that currency)has changed to a higher fixed rate.

Moral hazard is a problem for the insurance industry.

If the U.S.inflation rate is 3 percent annually and the Japanese inflation rate is 1 percent annually,by what percent would the dollar price of the yen need to change according to purchasing power parity?

If a country fixes its exchange rate below the equilibrium value,

A devaluation of a currency means that the exchange rate (price of that currency)has changed to a lower fixed rate.

If a country fixes its exchange rate below the equilibrium value,