ECO472 Final Exam: True/False

Under purchasing power parity (PPP), if U.S. monetary growth leads to a long run doubling of the U.S. price level, while Germany's price level remains constant, PPP predicts that the long-run DM price of the dollar will be doubled halved. True /False

False

The collective views of the network of like-minded powerful institutions such as the Treasury Department, (the State Department), the IMF, and the World Bank are called "________Consensus."

Washington

The collapse of the Bretton Woods system marked the end of fixed/floating exchange rates and a move to fixed/floating exchange rates.

fixed; floating

A central bank's international reserves consists of its holdings of ____ and _____.

foreign assets; gold

Assuming that PPP holds for traded goods, the overall price level, expressed in the same currency, would be higher/lower in high-income countries.

higher

Two most important advantages of a floating exchange rate are (i) it allows monetary ________ and (ii) _________ adjustment to trade shocks

independence (autonomy) ; automatic

The exchange rate regimes between the firm fix and free float are called _________ regimes. They are usually termed with band, ______, _______, and escape clauses.

intermediate; basket; crawl

By internal / external balance, most economists mean full employment and price stability.

internal

By______ balance, most economists mean full employment and price stability.

internal

Under the fixed rates, monetary policy can affect only output/international reserves

international reserves

The IMF agreement (1944) forced the U.S. to exchange gold for dollars at $___/ ounce

$35

The eurozone started with ____ countries in ____. Currently, its members consist of ____ countries

11; 1999; 19

The demand for money declined in the U.S. The DD/AA schedule will shift to the right/left.

AA; right

The Louvre Accord of 1985 announces that the G-5 countries will intervene in the foreign exchange market to bring about a dollar depreciation. True /False

False

The gold standard period was between the first and second world wars. True /False

False

Imports from the eurozone increase. The DD/AA schedule will shift to the right/left

DD; left

If most of the shocks that buffet the economy come from the output market shocks, then fixed exchange rates are better than floating exchange rates.True /False

False

International capital flows tend to be counter-cyclical and subject to the Lucas Paradox. True /False

False

the earnings of a US worker in Kazakhstan are counted in the US GDP/GNP and are a part of Kazakhstans's GDP/GNP

GNP; GDP

The II / XX schedule shows how much fiscal expansion is needed to hold the current account surplus at X as the currency is devalued by a given amount

II

Europe's leaders decided to bail out Greece. In the event, the 'lenders of last resort' were the Troika which consisted of ________, ________ and ________

IMF; ECB; European Commission

An increase in government purchase (G) will shift the IS/LM to the right/left.

IS; right

Under fixed rates, monetary policy can affect only output /international reserves.

International reserves

An increase in money demanded (L) will shift the IS/LM to the right/left.

LM; left

The last three members that have joined the Eurozone since 2011 are Estonia, Slovenia / Latvia, and Lithuania

Latvia

According to the ______Treaty, to join the EMU, (a) a country should have no more than ____ % inflation rate above the average of the three EU member states with the lowest inflation, (b) a public-sector deficit no higher than ___ % of its GDP in general, ___ % of its GDP.

Maastricht; 1.5; 3; 60

During the Great Depression, countries with the biggest deflations and output contractions are countries which stayed on the gold standard until 1936.

True

Fiscal policy affects output more under fixed than under flexible exchange rate regimes. True/False?

True

If central banks are not sterilizing and the home country has a balance of payments surplus, any associated decrease in a foreign central bank's claims on the home country implies a decreased foreign money supply. True/False?

True

If most of the shocks that buffet the economy come from the demand for output market shocks, then flexible exchange rates are better than fixed exchange rates.True/False?

True

If most of the shocks that buffet the economy come from the output market shocks, then flexible exchange rates are better than fixed exchange rates. True/False?

True

In a closed economy, national saving is always equal to domestic investment. True/False

True

In the case of a domestic monetary shock, floating exchange rates make the home economy more vulnerable. True/False?

True

The price-specie-flow mechanism is an automatic /discretionary mechanism for assuring internal /external balance under the gold standard / a floating exchange rate

automatic; external; the gold standard

A ______ crisis is best described as a sharp change in foreign reserves sparked by a change in expectations about the future exchange rate.

balance of payments

An expenditure-changing/switching policy alters the level of the economy's total demand for goods and services. An expenditure-changing/switching policy, on the other hand, induces an exchange rate adjustment and thus changes the direction of demand, shifting it between domestic output and imports

changing; switching

An expenditure-changing/switching policy alters the level of the economy's total demand for goods and services. An expenditure-changing/switching policy, on the other hand, induces an exchange rate adjustment and thus changes the direction of demand, shifting it between domestic output and imports.vi

changing; switching

Costs of international capital flows include (i) ________ of capital flows and lack of access in selected countries; domestic _________ of capital flows, (iii) Loss of macroeconomic stability, (iv) __________ of short-term flows, (v) herding, ________, and volatility of capital flows, and (vi) risk of entry by foreign banks.

concentration; misallocation; pro-cyclicality; contagion

Benefits of international capital flows include (i) _______ smoothing, (ii) increase in domestic ________ and economic growth, (iii) Enhanced macroeconomic discipline, and (iv) increased banking system efficiency and financial______

consumption; investment; stability

The current account surplus is a(n) increasing /decreasing function of disposable income and a(n) increasing /decreasing function of the real exchange rate.

decreasing; increasing

Suppose that, in a hypothetical country, domestic investment an national saving in 2017 were 19% and 13% of GDP, respectively. If the country's GDP was $300 billion, its current account balance would be a surplus/deficit of $____.

deficit; $18 billion

If there is initially an excess supply for money, there is an excess supply/demand for bonds, the interest rate will rise/fall, and the domestic currency will appreciate/depreciate.

demand; fall; depreciate

to the left of the IS schedule, there is an excess demand/supply of goods/money.

demand; goods

The liabilities side of a central bank's accounts consists of ____ and ____.

deposits held by private banks; currency in circulation

Suppose that the domestic and foreign inflation rates were 7 and 3% last year, respectably, and the domestic currency depreciated by 6% over the same period. In real terms, the domestic currency then (appreciated / depreciated) by ___ %.

depreciated

Suppose that the domestic and foreign inflation rates were 2% and 7% last year, respectably, and the domestic currency appreciated by 4% over the same period. In real terms, the domestic currency then appreciated/depreciated by ____%.

depreciated; 1%

Under flexible exchange rate, the response of an economy to a temporary fall in foreign demand for its exports is the currency ____ , and output _____.

depreciates; declines

the yen rate of return on dollar deposits is approximately the dollar interest rate plus the rate of appreciation/depreciation of the yen against the dollar.

depreciation

Those who support a firm-fix for exchange rates suggest the following forms of exchange rate regime: (a) currency union, (b) ________, and (c) currency board

dollarization

The two-way feedback from bank distress to government borrowing problems is called a ____ _____. In the eurozone, the problem caused a ___ ___ of international capital movement and self-fulfilling sovereign ____ ____

doom loop; sudden stop; debt default (debt crisis)

The _______ _________loss from pegging to the area's currencies falls as the degree of economic interdependence rises

economic stability

In the short-run, a temporary increase in money supply shifts the DD curve to the right, increases output and depreciates the currency. True/False?

false

Starting from a situation of zero trade balance, in an economy with flexible exchange rates and perfect capital mobility, a monetary expansion results in increased income, currency appreciation and a trade deficit. True/False

false

Under floating exchange rates with perfect capital mobility, (monetary / fiscal) policy is not an effective policy

fiscal

Under a fixed/floating exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output.

fixed

The collapse of the Bretton Woods system marked the end of fixed/floating exchange rates and a move to fixed/floating exchange rates

fixed; floating

In response to an asymmetric shock, three types of automatic adjustment mechanisms are available for countries in a monetary union. They are (i) price and wage adjustment; (ii) _______ migration; and (iii) income ______ through fiscal federalism.

labor; transfer

In the case of a domestic monetary shock, a fixed exchange rate makes the home economy more / less vulnerable

less

Among determinants of international capital inflows, push factors (i) advances in financial technology, information processing, and communications, and (ii) low / high interest rates and boom / recession in the US and other industrial countries.

low; recession

The ____ _____ gain from a fixed exchange rate with euro is greater/smaller when trade between, say, Norway and the euro zone, is extensive than when it is small.

monetary efficiency; greater

The welfare gains of a monetary union, called "_____ ______ gain", are likely to increase / decrease with the degree of openness. The cost, called the "______ _______ loss", is likely to be smaller / larger for a more open economy.

monetary efficiency; increase; economic stability; smaller

Loss of macroeconomic stability due to inflows of international capital include (i) rapid _______ expansion and inflationary pressures, (ii) real exchange rate_________, (iii) widening ______ _______ deficits

monetary; appreciates; current account

The case where people purposely act in a careless way, for example, driving recklessly because they are insured, is called _____.

moral hazard

In the case of a domestic monetary shock, a floating exchange rate make the home economy more/less vulnerable

more

According the the long run ____ of money, a change in the level of the supply of money has no effect on the long run values of interest rate and real output while the real/nominal variables such as the price level change in the same proportion as the money supply.

neutrality; nominal

Currency mismatches are an inherent feature of emerging markets. Eichengreen and Hausman (1999) term it the _____ _____.

original sin

Charles Kindleberger says "capital flows are characterized by _____ and ______ ."

panics; manias

For a fixed interest rate, a rise in the expected future exchange rate causes a fall/rise in the current exchange rate.

rise

Any central bank purchase/sale of assets automatically results in a decrease in the domestic money supply

sale

Devaluation and default are often perceived to be the involuntary results of a change in investor sentiment that leads to a _____ _____ in capital inflows or a sudden increase in capital flight

sudden stop

Financial contagion can arise due to (i) common shocks, (ii) ________________, or (iii) _________________________.

trade linkage; financial independence

A country that joins an exchange rate area gives up its ability to use the exchange rate and monetary policy for the purpose of stabilizing output and employment. True/False?

true

If a country chooses to have a monetary policy oriented toward domestic goals and the freedom of international capital movements, then it cannot have a fixed exchange rate. True/False?

true

The level of fiscal federalism in the European Union is too small to cushion member countries from adverse economic events. True/False?

true

Under flexible exchange rate, in response a temporary increase in foreign demand for country A's exports, A's currency appreciates, and its output increases. True/False?

true

The Mexican peso rate of return on yen deposits is approximately the peso/yen interest rate plus the rate of appreciation/depreciation of the yen against the peso.

yen; appreciation