Deck 18: Macroeconomic Policy in the World Economy

Question 1

The Eurozone includes each of the following countries except

A) Italy.
B) Luxembourg.
C) Portugal.
D) Spain.
E) Switzerland.

Answer 1

Switzerland.

Question 2

As a country works toward freeing up its financial markets and joining the other major world financial and monetary systems, it must open up which of the following areas?

A) Currency transactions
B) Capital movement
C) Movement of goods and services
D) All of the above
E) Only a and b

Answer 2

All of the above

Question 3

Sterilized intervention

A) works less effectively the more integrated world financial markets become.
B) works regardless of the level of foreign reserves held by a country.
C) can be effective domestically even if it has perverse international ramifications.
D) works essentially by exploiting myopic expectations of world traders.
E) works essentially because of the efficiency of markets in a system of rational expectations.

Answer 3

works less effectively the more integrated world financial markets become.

Question 4

The Eurozone includes each of the following countries except

A) Austria.
B) England.
C) Finland.
D) France.
E) Germany.

Question 5

If a central bank were to undergo sterilized foreign exchange intervention, it would offset an unwanted appreciation of its currency by

A) selling foreign reserves and selling domestic credit at the same time.
B) buying foreign reserves and selling domestic credit at the same time.
C) selling foreign reserves and buying domestic credit at the same time.
D) buying foreign reserves and buying domestic credit at the same time.
E) none of the above.

Question 6

The Eurozone includes each of the following countries except

A) Belgium.
B) Ireland.
C) Italy.
D) Spain.
E) Switzerland.

Question 7

Under the Bretton Woods Agreement, appreciation of a country's currency against the dollar necessitated

A) a contractionary shift in that country's monetary policy by buying dollar securities.
B) an expansionary shift in that country's fiscal policy by increasing its government's share of domestic spending.
C) an expansionary shift in that country's monetary policy by buying dollar securities.
D) a contractionary shift in that country's fiscal policy by reducing its government's share of domestic spending.
E) an expansionary shift in that country's monetary policy by selling dollar securities.

Question 8

The world financial and monetary system consists of several large economies with sophisticated financial markets. The currencies of four major participants include all but the

A) yen.
B) dollar.
C) pound.
D) peso.
E) euro.

Question 9

The world financial and monetary system consists of several large

A) Bank of Japan.
B) Federal Reserve Bank.
C) European Central Bank.
D) Bank of England.
E) Bundesbank.

Question 10

Each of the following countries has sophisticated, intergrated financial markets except

A) Britain.
B) China.
C) the Eurozone.
D) Japan.
E) the United States.

Question 11

A country defining its monetary units in terms of gold or silver would experience each of the following conditions except

A) flexible exchange rates.
B) convertibility.
C) restrictions on the flow of capital.
D) economic development.
E) constant relative currency values.

Question 12

Which of the following countries has tight controls on the movement of currency and securities across its borders?

A) South Africa
B) People's Republic of China
C) Great Britain
D) all of the above
E) none of the above.

Question 13

Central banks in large industrialized nations

A) hold large portfolios of U.S. government Treasury securities.
B) hold large portfolios of securities issued by other's governments.
C) seldom try to influence each other's exchange rate.
D) all of the above.
E) only a and b.

Question 14

Countries with inconvertible currencies generally have no need to

A) increase restrictions on their financial markets.
B) open up currency transactions on an international basis.
C) encourage greater capital flows across their borders.
D) stimulate the flow of goods and services between them and their trading partners.
E) both c and d.

Question 15

Holders of each of the following currencies can freely move reserves between countries in extremely fluid, free markets except the

A) pound.
B) yuan.
C) euro.
D) yen.
E) dollar.

Question 16

Which of the following correctly distinguishes between depreciation and devaluation?

A) Market interactions cause currencies to depreciate, but only governments can enact policies of devaluation.
B) Market interactions can cause either, but policy decisions by governments can produce only depreciation.
C) Market interactions can cause either, but policy decisions by governments can produce only devaluation.
D) Market interactions can cause either, but only policy decisions by governments can produce a devaluation.
E) None of the above.

Question 17

The intervention currency of the Bretton Woods system was

A) the West German mark.
B) the U.S. dollar.
C) the British pound.
D) a predetermined mutual fund of major currencies.
E) the Special Drawing Rights of the World Bank.

Question 18

Economic factors that put pressure on fixed exchange rates include

A) different rates of growth of productivity in two or more countries.
B) different rates of inflation in two or more countries.
C) different levels of potential GDP in two or more countries.
D) different product mixes in two or more countries.
E) a and b only.

Question 19

When a country's currency is devalued,

A) its export industries benefit.
B) its import industries benefit.
C) tight conditions can arise within its trading partners' labor markets.
D) it is a sign of strength for the home government.
E) none of the above.

Question 20

All of the following statements are correct except which one?

A) U.S. currency is now accepted, with relatively few exceptions, in most major industrialized nations.
B) World capital markets have now advanced to allow relatively easy borrowing across borders.
C) Black or curb markets frequently offer the traveler a better deal than legitimate enterprises.
D) Both a and b.
E) Both b and c.

Question 21

Researchers including a real exchange rate term in the Taylor rule such that
^{r = p + dp - p*) + BY^ + R* - aEP/P}W^{) have found that, for the United} States, a is

A) positive.
B) negative.
C) equal to zero.
D) impossible to calculate.
E) undefined.

Question 22

Most countries that dollarized, joined monetary unions, or began using currency boards have done so because they were unable to

A) bring inflation under control.
B) effectively pursue monetary policy.
C) ensure efficient capital mobility.
D) defend a fixed exchange rate.
E) none of the above.

Question 23

Which of the following countries does not have a currency that floats independently?

A) Great Britain
B) Japan
C) United States
D) Germany
E) none of the above

Question 24

The macroeconomic policy trilemma regarding exchange rate policies is that monetary authorities

A) cannot pursue independent monetary policy while maintaining fixed exchange rates and allowing free capital movement.
B) maintain fixed exchange rates while pursuing an independent monetary policy and allowing free capital movement.
C) allow free capital movement while pursuing an independent monetary policy and maintaining fixed exchange rates.
D) all of the above.
E) none of the above.

Question 25

Under the Bretton Woods Agreement, preventing the appreciation of a currency would result in

A) a reserve inflow and a reduction in dollar securities.
B) a reserve outflow and a reduction in dollar securities..
C) a reserve inflow and an increase in dollar securities.
D) a reserve outflow and an increase in dollar securities.
E) a reserve inflow and no change in the level of dollar securities.

Question 26

The indirect channels) through which higher exchange rates can cause the central banks using a Taylor rule to lower interest rates are

A) increased positive output gaps.
B) higher inflation relative to targeted inflation.
C) decreased negative output gaps.
D) decreased positive output gaps.
E) none of the above.

Question 27

Countries formally agreed to free-floating exchange rates

A) when Nixon took the United States off the gold standard in 1971.
B) by agreement at the 1971 Smithsonian negotiations.
C) in immediate response to the OPEC oil shock of 1973.
D) in immediate response to the U.S. recession of 1975.
E) in response to several events, including each of the above.

Question 28

The Bretton Woods system was one of

A) relatively fixed exchange rates set across the world by international agreement.
B) extremely flexible exchange rates monitored across the world by international agencies.
C) actively managed, floating exchange rates dominated by the major currency markets around the world.
D) laissez-faire exchange rate policy that allowed countries to focus entirely on domestic policy issues.
E) relatively fixed exchange rates that could be changed only once during a specified week every year.

Question 29

When the United States ended its involvement in the Bretton Woods System in 1971, which of the following was not true?

A) The United States was selling gold for $35 an ounce.
B) Several governments were buying large quantities of gold from the United States.
C) Governments throughout the world denounced President Nixon for leading the United States departure from the gold standard.
D) The United States had to essentially force other countries to revalue their currencies against the dollar.
E) According to Taylor and Papell's text, all of the above are true.

Question 30

The monetary authority of a country that pursues a fixed exchange rate policy is unable to

A) utilize a Taylor rule.
B) respond to output gaps.
C) fight inflation increases.
D) all of the above.
E) only a and c.

Question 31

The indirect channels) through which exchange rate movements can affect the interest rates set by central banks using a Taylor rule are

A) impacts on output gaps.
B) impacts on inflation differentials from targeted inflation.
C) impacts on budget deficits.
D) all of the above.
E) both a and b.

Question 32

The United States, Germany, Great Britain, France, and Japan met in 1985 to discuss a currency problem. Which of the following accurately describes their agreement and its results?

A) They agreed to intervene to increase the value of the dollar. The dollar responded to the intervention by falling.
B) They agreed to intervene to increase the value of the dollar. The dollar responded by increasing in value by more than expected.
C) They agreed to intervene to reduce the value of the dollar. The dollar responding by rising in value.
D) They agreed to intervene to reduce the value of the dollar. The dollar responded by falling a great deal.
E) None of the above.

Question 33

Signators of the Bretton Woods system agreed to

A) intervene to keep their currencies exactly at par values.
B) intervene to keep their currencies within 10 percent of par values.
C) intervene to keep their currencies between par values and 1 percent above par values.
D) remove domestic concerns from policies directed at maintaining their currencies' par values.
E) none of the above.

Question 34

After the Bretton Woods system was abandoned in the early 1970s, U.S. exchange rates became the products of implicit or explicit international agreements that

A) call for exchange rates to float freely and be "managed" by market forces.
B) call for exchange rates to be fixed by active, "hold up the lamppost" intervention by central banks across the world.
C) call for exchange rates to fluctuate freely in markets, apart from occasional intervention by major central banks in times of extreme turbulence.
D) either b or c, depending on circumstance.
E) none of the above.

Question 35

During the last 25 years, many more countries have chosen to abandon fixed exchange rate systems in favor of

A) monetary unions.
B) dollarization.
C) currency boards.
D) all of the above.
E) none of the above.

Question 36

Under the Bretton Woods Agreement, support of a country's currency in the face of depreciation against the dollar could continue

A) indefinitely.
B) only as long as U.S. holdings of that country's securities lasted, so that the United States would continue to have something to sell that country.
C) only as long as that country's holdings of its own international currency securities lasted, so that it could continue to purchase its own securities.
D) only as long as that country's holdings of dollar reserves lasted, so that it could continue to purchase domestic securities.
E) only as long as the World Bank did not find out and respond with punitive monetary intervention.

Question 37

The indirect channels) through which higher exchange rates can cause the central banks using a Taylor rule to lower interest rates are

A) increased exports.
B) increased net exports.
C) decreased exports.
D) deceased imports.
E) both a and d.

Question 38

Which of the following events did not strain the European monetary system EMS) of the 1980s and 1990s and thus contribute to the formation of the Eurozone.

A) Repeated devaluation of the French franc
B) The reunification of East and West Germany
C) The United Kingdom's departure from the EMS
D) All of the above
E) None of the above

Question 39

Due to the inability to maintain fixed exchange rates in the European Monetary System which of the following countries left the EMS?

A) France
B) Germany
C) Spain
D) Britain
E) Luxembourg

Question 40

During the 1980s and 1990s, the European monetary system EMS) was tied to which of the following currencies?

A) Pound.
B) Swiss franc.
C) Mark.
D) Dollar.
E) Peseta.

Question 41

Which of the following conditions describes the state of economic affairs in Japan during 2003?

A) The stock market had fallen by almost 80 percent since 1989.
B) The national debt was almost one and a half times the size of the GDP.
C) Unemployment was higher than any time in the previous five decades.
D) Land prices had fallen by almost 90 percent since 1989.
E) All are true except d.

Question 42

All of the following countries except one have had similar inflation experiences during the period from 1960-2000. Which does not belong?

A) Australia
B) Canada
C) Germany
D) United Kingdom
E) United States

Question 43

We can understand why the early 1990s saw such a restrictive monetary policy in Japan by considering all of the following explanations except

A) a concern over inflation that was too high.
B) a concern that the depression was caused by nonmonetary factors.
C) a need to counteract inflated asset prices.
D) monetary officials who felt that interest rates were already too low.
E) none of the above.

Question 44

By the mid-1990s, a negative real GDP gap in Japan was as large as it was in the United States during which of the following downturns?

A) 1921
B) 1933
C) 1982
D) 1991
E) 2002

Question 45

Which of the following practices or objectives are necessary to ensure a stable long-run monetary policy?

A) Flexible prices
B) Flexible exchange rates
C) Inflation targets
D) A monetary policy rule
E) All of the above except a

Question 46

Which of the following countries experienced deflation during the 1990s?

A) New Zealand
B) Australia
C) China
D) Japan
E) United States

Question 47

All of the following countries except one have experienced reduced real GDP fluctuations during the period from 1960-2000. Which does not belong?

A) Australia
B) Canada
C) Japan
D) United Kingdom
E) United States

Question 48

Which of the following statements is untrue?

A) Unless a country dollarizes or uses a common currency or a currency board, a successful long-run monetary policy requires flexible exchange rates, inflation targets, and a monetary policy rule.
B) The Taylor rule includes an implicit, or indirect, real exchange rate effect on the interest rate.
C) Countries adopting a Taylor rule approach to monetary policy experienced reduced real GDP fluctuations.
D) Countries adopting a Taylor rule approach to monetary policy experienced constant inflation behavior throughout the 1980s and 1990s.
E) Countries utilizing monetary policy rules similar to the Taylor rule experienced improved macroeconomic behavior.

Question 49

By the mid 1990s, real GDP in Japan was percent below its
Potential.

A) 5
B) 10
C) 15
D) 20
E) 25

Question 50

Researchers including a real exchange rate term in the Taylor rule such that ^{r = p + dp - p*) + BY^ + R* - aEP/P}W^{) have found that, for the Germany} and Japan, a is

A) positive.
B) negative.
C) equal to zero.
D) impossible to calculate.
E) undefined.

Question 51

From the experience of Japan and the United States, we learn that periods of
_ _ _ _ _ _ _ _ _ _ _ _ inflation correlate with __________ macroeconomic
Performance.

A) low, poor
B) high, good
C) high, poor
D) low, good
E) both c and d

Question 52

Restoring economic growth in Japan requires progress in each of the areas listed below except

A) restoring inflation.
B) increasing the growth rate of the money supply.
C) reducing the volume of nonperforming loans.
D) increasing productivity in food processing industries.
E) none of the above.

Question 53

We can understand why the early 1990s saw such a restrictive monetary policy in Japan by considering all of the following explanations except

A) a concern over inflation that was too high.
B) a concern that the depression was caused by nonmonetary factors.
C) a need to counteract inflated asset prices.
D) monetary officials who felt that lowering interest rates further would do no good.
E) none of the above.