Chapter 11 Assessment

Which of the following arguments is in favor of floating exchange rates?

Governments can restore monetary control by removing the obligation to maintain exchange rate parity.

Which of the following changes were made to the International Monetary Fund's Articles of Agreement in the Jamaica agreement?

IMF members were permitted to sell their gold reserves at the market price.

Increasingly the _____ has been acting as macroeconomic policy of the world economy, insisting that countries seeking significant borrowings adopt certain macroeconomic policies.

International Monetary Fund (IMF)

Which of the following statements is true of pegged exchange rates?

Pegged exchange rates are popular among many of the world's smaller nations.

Which of the following observations is true of the current system of the foreign exchange market?

The current system is a combination of government intervention and speculative activity.

What will happen if a country increases its money supply rapidly under a fixed exchange rate regime?

The trade deficit would widen in that country.

International Development Association loans

are funded through subscriptions from wealthy members.

The value of U.S. dollar increased between 1980 and 1985

despite running a growing trade deficit.

When a country tries to hold the value of its currency within some range against an important reference currency such as the U.S. dollar without adopting a formal pegged rate, it is referred to as a

dirty float.

Which of the following is a common underlying cause of financial crises?

excessive expansion of domestic borrowing

The international monetary system refers to the institutional arrangements that govern

exchange rates.

When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a _____ regime.

floating exchange rate

The monetary autonomy argument is supported by the advocates of

floating exchange rates.

A _____ is a situation in which a country cannot service its foreign debt obligations.

foreign debt crisis

A country's trade balance is in surplus when

its exports are more than its imports.

Which of the following is the exchange rate policy where the government intervenes in the exchange rate system only in a limited way?

managed-float

A _____ means the value of a currency is fixed relative to a reference currency.

pegged exchange rate

International Monetary Fund members were _____ in the Jamaica agreement.

permitted to sell their own gold reserves at the market price

Under a currency board system

the government lacks the ability to set interest rates.

Moral hazard arises when people behave recklessly because

they know they will be saved if things go wrong.