Question 1

Although monetary discipline was a central objective of the Bretton Woods agreement,it was recognized that a _______________ of fixed exchange rates would be too inflexible.

Accepted Answer

The Bretton Woods agreement aimed for stability but acknowledged that a "rigid policy" of fixed exchange rates would lack the necessary flexibility for effective economic management.

Question 2

The ______________ exchange rate regime that followed the collapse of the fixed exchange rate system was formalized in January 1976 when IMF members met in Jamaica and agreed to the rules for the international system that are in place today.

Accepted Answer

The question is asking about the exchange rate regime that was formalized after the collapse of the fixed exchange rate system, and the answer is A) floating. This was agreed upon in 1976 at the Jamaica currency conference, where IMF members agreed to allow exchange rates to float, meaning that they would be determined by market forces rather than fixed by governments. This system is still in place today.

Question 3

In the context of the global money system,in August 1971 President Nixon made the following two announcements: (1)a new 10 percent tax on imports would remain in effect until the trading partners of the U.S.agreed to revalue their currency against the dollar and (2)_____.

Accepted Answer

President Nixon announced that the U.S. dollar would no longer be convertible into gold, effectively ending the Bretton Woods system and the fixed exchange rate regime. This decision was known as the "Nixon Shock" and had significant implications for the global money system.

Question 4

Two major features of the International Monetary Fund (IMF)Articles of Agreement fostered flexibility within the monetary system.These features included IMF lending facilities and:

Accepted Answer

The IMF lending facilities provided member countries with the ability to borrow foreign currency reserves to stabilize their economies and balance of payments. However, to further promote flexibility in the monetary system, the IMF also introduced adjustable parities, which allowed member countries to adjust the value of their currencies in accordance with changing economic conditions. This allowed for greater flexibility in maintaining stable exchange rates and promoting international trade. Therefore, the correct answer is D - adjustable parities.

Question 5

Most economists trace the break-up of the fixed exchange rate system to ____________.

Accepted Answer

Most economists trace the break-up of the fixed exchange rate system to the U.S. macroeconomic policy package of 1965-1968, which was characterized by expansionary fiscal and monetary policies that led to inflation and a deterioration in the U.S. balance of payments. This resulted in an outflow of gold from the U.S. and put pressure on other countries to devalue their currencies. Eventually, the Bretton Woods system of fixed exchange rates collapsed, and the world moved towards a system of floating exchange rates.

Question 6

Which of the following statements accurately depicts what happened to the Bretton Woods system of fixed exchange rates?

Accepted Answer

The Bretton Woods system began to show signs of strain in the 1960s, mainly due to the increasing US balance of payment deficits, and it finally collapsed in 1973 when the US abandoned the gold standard.

Question 7

The Bretton Woods system had an Achilles' heel: The system could not work if its key currency,the U.S.dollar,was what?

Accepted Answer

The Bretton Woods system was based on fixed exchange rates, with the US dollar being pegged to gold and other currencies being pegged to the US dollar. However, the system could not work if the US dollar was under speculative attack, as this would cause other countries to lose confidence in the system and seek to exchange their dollar reserves for gold. This eventually happened in the 1970s, leading to the collapse of the Bretton Woods system.

Question 8

The Bretton Woods system of fixed exchange rates collapsed in 1973,and since then most countries have practiced a _________________.

Accepted Answer

Most countries have practiced a managed-float system since the collapse of the Bretton Woods system in 1973. Under a managed-float system, exchange rates are determined by market forces, but governments can intervene to adjust the exchange rate to correct any extreme fluctuations.

Question 9

In some cases,a country's attempts to reduce its money supply growth and correct a persistent ______________ deficit could force the country into recession and create high unemployment.

Accepted Answer

A persistent balance-of-payments deficit indicates that a country is importing more goods and services than it exports, which creates a net outflow of currency. To finance the deficit, a country may have to borrow funds from other countries or print more money. If the country tries to reduce its money supply growth in order to stabilize its currency, it may have to raise interest rates, which can lead to a decrease in consumer and business spending and hinder economic growth. This can result in a recession and high unemployment.

Question 10

Which of the following was not one of the main elements of the Jamaica Agreement?

Accepted Answer

The establishment of the International Monetary Fund preceded the Jamaica Agreement and was not one of the main elements of the agreement itself.

Question 11

The International Bank for Reconstruction and Development (IBRD)is the official name for the:

Accepted Answer

The International Bank for Reconstruction and Development (IBRD) is the official name for the World Bank, which was established in 1944 to help rebuild Europe after World War II. Today, the World Bank provides loans, grants, and technical assistance to developing countries in order to reduce poverty and promote sustainable economic growth. The other options listed are separate international organizations with different mandates and functions.

Question 12

The three main elements of the Jamaica Agreement were:

Accepted Answer

The three main elements of the Jamaica Agreement were the acceptance of floating exchange rates, the abandonment of gold as a reserve asset, and the increase of total annual IMF quotas to $41 billion. Option A is incorrect as it states that the IMF was established, which is not true as it was established in 1944 under the Bretton Woods Agreement. Options C and D are incorrect as they state opposite statements to what the Jamaica Agreement aimed for. Option E is incorrect as not all the options are correct.

Question 13

The initial mission of the World Bank was to __________________

Accepted Answer

The initial mission of the World Bank was to help finance the rebuilding of Europe's economy after World War II by providing low-interest loans, which is aimed at reconstruction and development efforts in war-torn regions.

Question 14

During the oil crisis in 1979,following the oil crisis of 1971 when the price of oil quadrupled,the Organization of Petroleum Exporting Countries increased the price of oil by ______.

Accepted Answer

The answer of During the oil crisis in 1979,following the...

Question 15

The partial collapse of the European Monetary System occurred in

Accepted Answer

The partial collapse of the European Monetary System, also known as Black Wednesday, occurred on September 16, 1992. This was when several countries were forced to devalue their currencies and withdraw from the system due to market pressures and speculation against their currencies, leading to a loss of credibility for the system.

Question 16

In the context of the global monetary system,the IBRD stands for the _______________.

Accepted Answer

The initials IBRD stand for the International Bank for Reconstruction and Development, which is a specialized agency of the United Nations. Its primary purpose is to provide loans and other financial assistance to developing countries for projects related to economic development, poverty reduction, and infrastructure improvement. The IBRD is one of the five institutions that make up the World Bank Group, along with the International Finance Corporation, the Multilateral Investment Guarantee Agency, the International Development Association, and the International Centre for Settlement of Investment Disputes.

Question 17

The IMF's system of adjustable parities,under the auspices of the Bretton Woods agreement,allowed for the devaluation of a country's currency of up to _______________ if the IMF agreed that the country's balance of payments is in fundamental disequilibrium.

Accepted Answer

Under the Bretton Woods system, a country could devalue its currency by up to 10% without needing IMF approval, but larger devaluations required IMF agreement.

Question 18

Under the _______________,money is raised through bond sales in the international capital market.

Accepted Answer

The International Bank for Reconstruction and Development (IBRD) raises money through bond sales in the international capital markets. The IBRD is a member of the World Bank Group and provides loans to middle-income and creditworthy low-income countries. The International Monetary Fund (IMF) provides financial assistance to countries facing economic difficulties, the World Trade Organization (WTO) regulates international trade, and the International Development Association (IDA) provides grants and low-interest loans to the world’s poorest countries.

Question 19

The term fundamental disequilibrium was not defined in the _______________,but it was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products.

Accepted Answer

The term fundamental disequilibrium was not explicitly defined in the IMF Articles of Agreement, but it was implied to refer to countries that suffered long-term imbalances in demand for their goods and services. The Articles of Agreement primarily address the IMF's purpose and functions, member countries' rights and obligations, and the management of the international monetary system.

Question 20

Helping finance the building of Europe's economy after World War II by providing low-interest loans was the initial mission of the ______________.

Accepted Answer

The World Bank was established in 1944, with a primary objective to provide loans and financial assistance to European countries for reconstructing and developing their economies after World War II. The European National Bank did not exist in the post-war era, the International Monetary Fund's mission was to maintain exchange rate stability and facilitate international trade, while the United States Treasury was responsible for managing the country's finances and economy. The World Trade Organization was established in 1995, long after the post-World War II reconstruction effort.

Quiz 10: The Global Monetary System