Question 1

Because the United States was the reserve-currency country under the Bretton Woods system,it could run large balance of payments ________ without ________ significant amounts of international reserves.

Accepted Answer

As the reserve-currency country, the United States was able to run large balance of payments deficits without losing significant amounts of international reserves.

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 was characterized by a fixed exchange rate system, which meant that exchange rate considerations were relatively more important than balance of payments considerations. However, since the abandonment of this system, countries have adopted more flexible exchange rate systems, which have made exchange rate considerations less important in the conduct of monetary policy. On the other hand, the importance of balance of payments considerations has increased, as changes in exchange rates can have significant impacts on a country's current account balance. Therefore, the correct answer is D: less;more.

Question 3

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

To weaken its currency, a central bank needs to pursue expansionary monetary policy, which involves lowering the domestic interest rate. This makes it less attractive for foreign investors to hold the currency, which in turn reduces its value. Contrarily, contractionary monetary policy involves raising the domestic interest rate, which makes the currency more attractive to investors and strengthens its value.

Question 4

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 5

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

If a central bank wants to strengthen its currency and prevent it from falling in value, it would pursue contractionary monetary policy. This involves raising the domestic interest rate, which makes the country's debt more attractive to foreign investors, and leads to an increase in demand for the currency. Therefore, option B is the correct answer.

Question 6

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 7

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 8

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

Accepted Answer

The answer of Which of the following is NOT an...

Question 9

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

Accepted Answer

A crawling peg is a type of exchange rate targeting rule where the central bank sets a fixed rate of depreciation for the domestic currency against the anchor currency or basket of currencies. This means that the domestic currency is allowed to depreciate steadily over time, which can help to stimulate exports and economic growth. In this case, the crawling peg allows for inflation in the pegging country to be higher than that of the anchor country, as the depreciation of the domestic currency helps to offset the impact of higher prices on international competitiveness.

Question 10

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 11

To keep from running out of international reserves under the Bretton Woods system,a country had to implement ________ monetary policy to ________ its currency.

Accepted Answer

Under the Bretton Woods system, if a country was running out of international reserves, it needed to implement contractionary monetary policy. This policy would reduce the money supply, increase interest rates, and as a result, strengthen the country's currency by making it more attractive to foreign investors.

Question 12

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 13

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 wants to prevent its domestic currency from appreciating, it needs to sell its currency on the foreign exchange market, in exchange for other currencies, thereby acquiring international reserves. This will increase the supply of the domestic currency, decrease its exchange rate, and stimulate exports. However, this will also increase the monetary base, as the central bank injects more domestic currency into the economy to purchase the foreign currency. This increase in base money can lead to higher inflation if not offset by appropriate monetary policies.

Question 14

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

The given definition is of exchange-rate targeting, which is when a country's central bank uses a fixed exchange rate regime to manage its monetary policy by tying the value of its currency to the currency of a large, low inflation country.

Question 15

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 allows a central bank to be governed by a policy rule, which increases the credibility of the policy and reduces the probability of developing a time-inconsistency problem. Following discretionary policy can increase the probability of time-inconsistency because it allows for more discretion and less predictability in the policymaking process.

Question 16

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 to keep inflation under control.

Question 17

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

When the German Bundesbank bought dollars and sold marks to keep the exchange rate fixed, it gained international reserves which meant an increase in the German monetary base. This increase in the monetary base led to rapid growth in the German money supply. Therefore, option D (grow; rapid) is the correct choice.

Question 18

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 19

Under the Bretton Woods system,when a country adopted an expansionary monetary policy,thereby causing a balance of payments ________,the country would eventually be forced to implement ________ monetary policy.

Accepted Answer

Under the Bretton Woods system, adopting an expansionary monetary policy could lead to a balance of payments deficit. To correct this imbalance, a country would be forced to adopt a contractionary monetary policy to stabilize its currency and balance of payments.

Question 20

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

The answer of A central bank's attempt to prevent an...

Quiz 21: The International Financial System

Because the United States was the reserve-currency country under the Bretton Woods system,it could run large balance of payments without significant amounts of international reserves.

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.

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.

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.

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.

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.

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.

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

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

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.

To keep from running out of international reserves under the Bretton Woods system,a country had to implement monetary policy to 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.

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.

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.

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

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.

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

Under the Bretton Woods system,when a country adopted an expansionary monetary policy,thereby causing a balance of payments ,the country would eventually be forced to implement 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.