Int. economic quiz questions for test 2

which of the following is true

A soft peg is when a Currency's exchange rate is only allowed to fluctuate within a set band

An American firm that buys foreign exchange because its managers expect the dollar to depreciate is

Both B & C - Speculating - increasing the demand for foreign exchange

which of the following countries refused to accept the IMF conditions during the east Asian financial crisis

Malaysia

The Bretton Woods exchange rate system was an example of a

a modified gold standard

A flexible exchange rate system crisis involves

a rapid and uncontrolled depreciation of the currency

economic growth would be illustrated by

a rightward shift of aggregate supply

all of the following took place during the great depression except

a rise in inflation during the early 1930'a

suppose the asian and financial crisis decreased US exports in the aggregate demand/aggregate supply model, this would be represented

a shift to the left of the aggregate demand leading to less spending and production in the US economy

all of the following are possible outcomes of a financial crisis except

a sure competitive advantage accompanied by a comparative advantage

expenditure switching refers to

a switching back and forth between domestic and foreign goods in response to changes in the exchange rate

If domestic savings is less than domestic investment, then

a trade deficit occurs and there will be a negative foreign investment. A&C

if a country runs a current account surplus and national private savings equals domestic investment, then the combined governmental accounts

must be positive

If a country runs a current account surplus and national private savings equals domestic investment, then the combined governmental accounts

must be positive.

another name for the capital account

net foreign investment; negative balance indicated that foreigners accumulate more home country assets than the home country

all else equal and given the current system of exchange rates, if the United States enters a period of exceptionally strong growth

the pressure on the dollar is to appreciate

when aggregate demand increases

the price level is likely to rise as GDP rises

All of the following involve a moral hazard problem EXCEPT

the requirement of banking institutions that owners invest a substantial portion of their own capital in their bank

aggregate supply

the total amount of goods and services in the economy available at all possible price levels

the j curve effect of a currency depreciation results is due to

the value of imports increasing by more than the value of exports at the time of devaluation

which of the following is false concerning purchasing power parity

there should not be a significant deviation in the long run value of purchasing power parity

which of the following would not be a reason why developed nations would try to cordinate their macroeconomic policies

to coordinate retaliatory policies on developing countries' trade barriers

the biggest disadvantage of a fixed exchange rate is the

tradeoff between supporting the exchange rate and maintaining economic growth

A debt crisis may lead to a banking crisis: T/F

true

The mexican peso crisis of 1994 & 1995 was directly related to

a large capital account surplus

Which of the following is FALSE about the Highly Indebted Poor Countries initiative?

Countries do not have to have established a past track record of economic reform in order to qualify as long as they make future commitments.

if a component of aggregate demand increases

GDP in the united states is likely to increase more than that component of spending increased

The difference between GNP and GDP is

GNP includes income received from abroad and excludes income paid abroad.

standstills

IMF officially recognize a country in crisis to stop interest payments on its debt temporarily

Which of the following may NOT help avoid a financial crisis

Immediately bailing out financial intermediaries and standing ready to bail out others in case a financial crisis occurs

According to purchasing power parity, which of the following is FALSE about an overvalued dollar compared to the Japanese yen?

Over the long term, the exchange rate would fall.

GNP equation

S+(T-G)=I+CA : (T-G)= government savings, S= private sector savings, I= domestic investment, CA= current account

According to the text, which of the following factors may make the theory of purchasing power parity unrealistic?

Trading countries may stop exchanging goods once prices between them equalize.

Which of the following is NOT one of the determinates of the gains of adopting a single currency

Widening the common market by allowing other countries to join

which of the following is true in regards to aggregate demand

aggregate demand shows the level of GDP and prices where expenditure decisions and production decisions match

if consumption spending increases because people feel more confident about the future

aggregate demand will shift to the right

one characteristic of a financial crisis caused by macroeconomic imbalances is that it

all the above: occur eventually even though its timing is unpredictable, may or may not be predictable, may be caused by expansionary fiscal policy accompanied by high budget deficits, may be caused by high deficits financed by increases in the money supply

an example of expansionary policy would be

an increase in government spending on infrastructure to create jobs and improve the economy

Suppose that the nominal exchange rate between the U.S. dollar and the Canadian dollar is 0.75 U.S. dollars per Canadian dollar. If Canada's rate of inflation is 0 percent and the U.S. rate is 10 percent, then the real exchange rate for the U.S. dollar will

appreciates by about 9 percent

government spending and taxes

are a major determinant of aggregate demand

Suppose the exchange rates between the United States and Canada are in long-en equilibrium as defined by the idea of purchasing power parity. If the law of one price holds perfectly, then differences between US and Canadian rates of inflation would

be completely offset by changes in the nominal exchange rate

The Smithsonian agreement of 1971 was hailed by President Nixon as a fundamental reorganization of the international monetary system. In fact what it accomplished

both the devaluation of the dollar and the reduction of the gold content of the dollar

When an individual or firm in the United States requests that a bank sell foreign

call a foreign exchange broker and arrange a purchase

an increase in demand for the Mexican peso

causes the U.S dollar to depreciate, causes the Mexican peso to appreciate, causes Mexican goods to be relatively more expensive, causes in increase in the U.S dollar price of a mexican peso

changes in aggregate demand

could be caused by changes in the spending decisions of the household, businesses, the government, and foreigners.

if the residents of a country receive income from their foreign investment it is counted as

credit in the current account

the main advice given by IMF to east Asian countries facing the financial crisis of 1997 was

defend countries with interest rate hikes

the basel capital accord does not include

denying access to foreign capital by a country that defaults on its international loans

All of the following are possible outcomes of a banking crisis except

depositors, but not banks, may lose all or a portion of there assets

Suppose the nominal exchange rate between the U.S dollar and the Mexican peso is .10 dollars per peso. If Mexico's inflation is 10% and the U.S is 0%, from the U.S point of view the real exchange rate

depreciates 11% per peso

A fixed exchange rate system crisis may be accompanied or followed by

devaluation in currency

A firm that buys foreign exchange in order to take advantage of higher foreign interest rates is

engaging in interest rate arbitrage

an austerity policy

expedenture reduction and expedenture switching policy

Capital controls are most often aimed at slowing or eliminating movements of

foreign portfolio investment

all of the following are possible explanations for why it took so long for trade balances to respond to the depreciation of the dollar except

foreign trade barriers made it impossible for the united states to substantially expand exports it bought

People sometimes worry that American trade with other countries will lead to large U.S. trade deficits and the movement of massive amounts of American capital out of the country. This worry is unfounded because countries cannot

have both current account and financial account deficits at the same time.

all of the following issues were discussed as options for reforming the international financial architecture except

if the lender of last resort (i.e IM) should consult and collaborate with other international institutions such as the united nations and WTO

when spending and incomes in an economy increase

imports are likely to increase

in most cases expenditures switching policies must be accompanied by expenditure-reducing policies because

inflation ensues as home country domestic expenditures switch away from foreign goods to domestic goods unless overall expenditures are reduced

debt service

is rarely an issue for high income countries

Under a gold standard, countries should

keep the supply of their domestic money fixed in proportion to their gold holdings

the causes of the asian financial crisis of 1997 and 1998

large account deficits, overvalued exchange rates, week financial sectors

current account

measures current, non financial transactions between a nation and the rest of the world includes: goods and services trade, earned income paid abroad and recieved, and trasfer payments made abroad and recieved

a single currency area requires

mobile labor and synchronized business cycles

Which of the following is NOT likely to occur when a bank fails

other banks make too many loans to make up for the loans not made by the failed bank, kicking off a cycle of stimulation and inflation

tranches

payments by the IMF made in installments

all of the following are true about foreign direct investment except that

portfolio investment has been on the decline in recent years for decades

during the 1990's which of the following did not occur

private savings was greater than investments for most of the 1990s

which of the following is not part of the current account

purchase of a foreign bond

financial account

record of financial transactions occurring between one country and the rest of the world. ei; foreign investment

capital account

record of transfers of specialized types of capital such as the gift of the an embassy building or the land it is on from residents of one country to another

Which of the following does not occur in resolving a debt crisis

repayment periods are shortened

sovereign wealth funds

savings held by government

data dissemination standards

standards focused on transparency and data reporting

all of the following make the use of fiscal policy less attractive except

that it cannot be effective unless it is accommodated with expansionary monetary policy

which of the following is false

the US trade balance in services is in deficit

The most important determinant of private investment in an economy is

the amount of domestic savings

aggregate demand

the amount of goods and services in the economy that will be purchased at all possible price levels

Under a fixed exchange standard, if the domestic demand for foreign exchange increases

the central monetary authority must meet the demand out of its reserves

critics of debt relief make all of the following arguments except

the cost of debt relief to the most severly indebted countries is too large for high income countries to afford

fiscal policy is

the deliberate manipulation of taxation and spending designed to affect the economy

the current account balance began to deteriorate in

the early 1980's

relationship between financial and current account

the financial accont reflects the same amount of lending or borrowing as the current account

a current account deficit implies

the financial account is in surplus

If all government budgets are balanced, and S is greater than I, then

the financial account must be negative.

In order to protect against foreign exchange risk, firms can use

the forward market for foreign exchange

along the aggregate supply curve

the middle upward slopping part of the aggregate supply curve would be associate with a growing economy that experienced

which of the following is not one of the factors your text identifies that could affect the size of the multiplier

whether the economy is in autarky equilibrium