Question 1

Some economists argue that higher inflation rates might be good if the consequence is greater growth in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is one of the reasons for the rapid rise in the value of the dollar between 1980 and 1985 despite a large trade deficit?

Accepted Answer

A)   Political stability in all other parts of the world
B)   Heavy capital outflows from the United States
C)   Low real interest rates in the United States
D)   Slow economic growth in the developed countries of Europe
E)   Increasing exports against decreasing imports in the United StatesF) B) and D)
G) A) and E)

Question 3

Which of the following observations about the International Monetary Fund (IMF) is true?

Accepted Answer

A)   With the collapse of the Bretton Woods system, the membership of the IMF has reduced.
B)   The IMF has been criticized for granting loans to the governments without enacting any macroeconomic policies.
C)   The IMF has refused to lend money to troubled economies experiencing financial crises.
D)   The IMF's activities have expanded because periodic financial crises have continued to hit many economies in the post-Bretton Woods era.
E)   Under the International Development Association scheme, the IMF offers long-term loans to governments of underdeveloped nations whose credit rating is poor.F) B) and E)
G) D) and E)

Question 4

Which of the following is a main element of the Jamaica agreement of 1976?

Accepted Answer

A)   The establishment of the International Monetary Fund
B)   The adoption of fixed exchange rates
C)   The increase in the total annual IMF quotas to $41 billion
D)   The declaration of gold as the reserve asset
E)   The decrease in the total membership of the International Monetary FundF) A) and B)
G) B) and E)

Question 5

Under a fixed exchange rate regime,what would be the result if a country rapidly increased its money supply by printing currency?

Accepted Answer

A)   It would lead to increase in the worth of the currency.
B)   The prices of imports would become more attractive in the country.
C)   The country's goods would be highly competitive in world markets.
D)   Trade surplus in the country would increase.
E)   It would lead to price deflation in the country.F) B) and D)
G) B) and E)

Question 6

The objective of establishing the World Bank was to:

Accepted Answer

A)   revive the gold standard.
B)   promote general economic development.
C)   control and manage the International Monetary Fund.
D)   promote a floating exchange rate system.
E)   approve large currency devaluations.F) None of the above
G) All of the above

Question 7

Which of the following statements is true about the current monetary system?

Accepted Answer

A)   Use of instruments such as the forward market and swaps has decreased since the breakdown of the Bretton Woods system.
B)   The present monetary system lacks the volatile movements in exchange rates that existed in a fixed exchange rate system.
C)   The current foreign exchange market works exactly as depicted in the purchasing power parity theory.
D)   Instruments such as the forward market and swaps increase the foreign exchange risk a company faces.
E)   A combination of government intervention and speculative activity drives the current foreign exchange market.F) A) and E)
G) A) and D)

Question 8

Under the gold standard,a country in balance-of-trade equilibrium will experience a net flow of gold from other countries.

Accepted Answer

A) True 
 B)False

Question 9

According to the critics of the International Monetary Fund (IMF) ,how should the problem of moral hazard exhibited by banks be resolved?

Accepted Answer

A)   The IMF should use a "one-size-fits-all" approach to macroeconomic policy.
B)   The IMF should establish a mechanism for accountability.
C)   The IMF should free all banks from the obligation of financial reporting.
D)   The banks should be forced to pay the price for their rash lending policies.
E)   The IMF should bail out the banks whose loans gave rise to financial crises.F) C) and D)
G) B) and E)

Question 10

A pegged exchange rate means the value of the currency is fixed relative to a reference currency,and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.

Accepted Answer

A) True 
 B)False

Question 11

Under a floating exchange rate system,a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.

Accepted Answer

A) True 
 B)False

Question 12

It can be very difficult for a small country to maintain a peg against another currency if capital is flowing out of the country and foreign exchange traders are speculating against the currency.

Accepted Answer

A) True 
 B)False

Question 13

Without currency devaluation,a country in "fundamental disequilibrium" would experience:

Accepted Answer

A)   a persistent trade surplus.
B)   a balance-of-payments equilibrium.
C)   an increase in exports.
D)   high unemployment.
E)   deflation.F) None of the above
G) C) and D)

Question 14

As the only currency that could be converted into gold,the British pound occupied a central place in the fixed exchange rate system.

Accepted Answer

A) True 
 B)False

Question 15

From mid-2008 through early 2009,the value of the dollar moderately increased against major currencies,despite the fact that the American economy was suffering from a serious financial crisis.Which of the following was a reason for this phenomenon?

Accepted Answer

A)   High real interest rates in the United States compared to any other developed region in the world sparked an inflow of funds into the country.
B)   U.S. assets were characterized by a high-risk, high-return payoff which prompted foreign investors to park their funds.
C)   Foreign investors were excited at the possibility of high returns following the government bail-out of financial institutions.
D)   Foreign investors put their money in low-risk U.S. assets such as low-yielding U.S. government bonds.
E)   Foreign investors saw opportunities in the United States as the level of indebtedness had begun to reduce.F) B) and E)
G) None of the above

Question 16

Which of the following observations is true of the Bretton Woods agreement?

Accepted Answer

A)   The participating countries were required to exchange their currencies for gold.
B)   Devaluation was accepted as a tool of competitive trade policy.
C)   The agreement called for a system of floating exchange rates.
D)   For weak currencies, devaluation of up to 10 percent was allowed without any formal approval by the International Monetary Fund.
E)   A fixed exchange rate system was deemed impractical.F) C) and D)
G) A) and C)

Question 17

As the volume of international trade expanded in the wake of the Industrial Revolution,shipping large quantities of gold around the world to finance international trade became impractical.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following was responsible for the World Bank shifting its focus from Europe to third world nations?

Accepted Answer

A)   The Great Depression
B)   The Jamaica agreement
C)   World War II
D)   The Marshall Plan
E)   The Bretton Woods agreementF) B) and D)
G) A) and B)

Question 19

Contracting out manufacturing may be more appropriate for high-value-added manufacturing.

Accepted Answer

A) True 
 B)False

Question 20

Describe gold standard and a balance-of-trade equilibrium.

Accepted Answer

Pegging currencies to gold and guarantee...

Exam 11: The International Monetary System

Some economists argue that higher inflation rates might be good if the consequence is greater growth in aggregate demand.

Correct AnswerverifiedShow Answer

Which of the following is one of the reasons for the rapid rise in the value of the dollar between 1980 and 1985 despite a large trade deficit?

Correct AnswerverifiedShow Answer

Under a floating exchange rate system,a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.

Correct AnswerverifiedShow Answer

From mid-2008 through early 2009,the value of the dollar moderately increased against major currencies,despite the fact that the American economy was suffering from a serious financial crisis.Which of the following was a reason for this phenomenon?

Correct AnswerverifiedShow Answer

Contracting out manufacturing may be more appropriate for high-value-added manufacturing.

Correct AnswerverifiedShow Answer

Describe gold standard and a balance-of-trade equilibrium.

Correct AnswerverifiedPegging currencies to gold and guarantee...View AnswerShow Answer

According to the critics of the International Monetary Fund (IMF) ,how should the problem of moral hazard exhibited by banks be resolved?

Correct AnswerverifiedShow Answer

Which of the following observations is true of the Bretton Woods agreement?

Correct AnswerverifiedShow Answer

Which of the following was responsible for the World Bank shifting its focus from Europe to third world nations?

Correct AnswerverifiedShow Answer

Which of the following is a main element of the Jamaica agreement of 1976?

Correct AnswerverifiedShow Answer

The objective of establishing the World Bank was to:

Correct AnswerverifiedShow Answer

Which of the following observations about the International Monetary Fund (IMF) is true?

Correct AnswerverifiedShow Answer

As the volume of international trade expanded in the wake of the Industrial Revolution,shipping large quantities of gold around the world to finance international trade became impractical.

Correct AnswerverifiedShow Answer

Without currency devaluation,a country in "fundamental disequilibrium" would experience:

Correct AnswerverifiedShow Answer

A pegged exchange rate means the value of the currency is fixed relative to a reference currency,and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.

Correct AnswerverifiedShow Answer

Under a fixed exchange rate regime,what would be the result if a country rapidly increased its money supply by printing currency?

Correct AnswerverifiedShow Answer

Which of the following statements is true about the current monetary system?

Correct AnswerverifiedShow Answer

As the only currency that could be converted into gold,the British pound occupied a central place in the fixed exchange rate system.

Correct AnswerverifiedShow Answer

Under the gold standard,a country in balance-of-trade equilibrium will experience a net flow of gold from other countries.

Correct AnswerverifiedShow Answer

It can be very difficult for a small country to maintain a peg against another currency if capital is flowing out of the country and foreign exchange traders are speculating against the currency.

Correct AnswerverifiedShow Answer

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Pegging currencies to gold and guarantee...
View Answer

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