Chapter 18
Everything else held constant, if a central bank makes an unsterilized purchase of foreign assets, then the domestic money supply will ________ and the domestic currency will ________. increase; appreciate increase; depreciate decrease; appreciate decrease; depreciate
increase; depreciate
Under the Bretton Woods system, the IMF could encourage deficit countries to pursue contractionary monetary policies that would ________ their currency or eliminate their balance of payment ________. strengthen; surpluses strengthen; deficits weaken; surpluses weaken; deficits
strengthen; deficits
Which of the following does not appear in the current account part of the balance of payments? A loan of $1 million from Bank of America to Brazil. Foreign aid to El Salvador. An Air France ticket bought by an American. Income earned by General Motors from its plants abroad.
A loan of $1 million from Bank of America to Brazil.
Both France and the United Kingdom successfully used exchange-rate targeting to lower inflation in the late 1980s and early 1990s by tying the value of their currencies to the U.S. dollar. German mark. Swiss franc. Euro.
German mark.
Which of the following is not a disadvantage of exchange-rate targeting? It relies on a stable money-inflation relationship. The targeting country gives up an independent monetary policy. The targeting country is left open for a speculative attack. It can weaken the accountability of policymakers.
It relies on a stable money-inflation relationship.
A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called an unsterilized foreign exchange intervention. a sterilized foreign exchange intervention. an exchange rate feedback rule. a money neutral foreign exchange intervention.
a sterilized foreign exchange intervention.
Under a fixed exchange rate regime, if a country has an undervalued exchange rate, then its central bank's attempt to keep its currency from ________ will result in a ________ of international reserves. depreciating; gain depreciating; loss appreciating; gain appreciating; loss
appreciating; gain
The account that shows international transactions involving financial transactions (stocks, bonds, bank loans, etc.) is called the trade balance. current account. balance of payments. capital account.
capital account.
Under the Bretton Woods system, a country running a balance of payments ________ lost international reserves, and had to implement ________ monetary policy to strengthen its currency. surplus; expansionary surplus; contractionary deficit; expansionary deficit; contractionary
deficit; contractionary
Under the Bretton Woods system, the IMF could encourage ________ countries to pursue ________ monetary policies that would strengthen their currency or eliminate their balance of payment deficits. surplus; expansionary surplus; contractionary deficit; expansionary deficit; contractionary
deficit; contractionary
Under a fixed exchange rate regime, if a country has an overvalued exchange rate, then its central bank's attempt to keep its currency from ________ will result in a ________ of international reserves. depreciating; gain depreciating; loss appreciating; gain appreciating; loss
depreciating; loss
Under a fixed exchange rate regime, if a central bank must intervene to purchase the ________ currency by selling ________ assets, then, like an open market sale, this action reduces the monetary base and the money supply, causing the interest rate on domestic assets to rise. domestic; foreign domestic; domestic foreign; foreign foreign; domestic
domestic; foreign
Under a fixed exchange rate regime, if the domestic currency is initially overvalued, that is, below par, the central bank must intervene to purchase the ________ currency by selling ________ assets. domestic; foreign domestic; domestic foreign; foreign foreign; domestic
domestic; foreign
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. expansionary; raise contractionary; raise expansionary; lower contractionary; lower
expansionary; lower
Under a fixed exchange rate system, countries that ran large, persistent balance of payments surpluses would ________ international reserves, thereby pressuring them into ________ their exchange rate. gain; devaluing gain; revaluing lose; devaluing lose; revaluing
gain; revaluing
The World Bank is an international organization that: promotes the growth of trade by setting rules for how tariffs and quotas are set by countries. makes loans to countries to finance projects such as dams and roads. makes loans to countries with balance of payment difficulties. helps developing countries that have been having difficulties in repaying their loans to come to terms with lenders in the West.
makes loans to countries to finance projects such as dams and roads.
If the current account balance shows a surplus, and the capital account also shows a surplus, then the official reserve transactions balance must be positive. must be negative. must be zero. can either be positive, negative, or zero.
must be positive.
Under the Exchange Rate Mechanism of the European Monetary System, when the British pound depreciated below its lower limit against the German mark, the Bank of England was required to buy ________ and sell ________, thereby ________ international reserves. pounds; marks; losing pounds; marks; gaining marks; pounds; gaining marks; pounds; losing
pounds; marks; losing
Everything else held constant, if a central bank makes an unsterilized ________ of foreign assets, then the domestic money supply will ________ and the domestic currency will depreciate. purchase; increase purchase; decrease sale; increase sale; decrease
purchase; increase
Everything else held constant, if a central bank makes an unsterilized ________ of foreign assets, then the domestic money supply will decrease and the domestic currency will ________. purchase; appreciate purchase; depreciate sale; appreciate sale; depreciate
sale; appreciate