Eco308 Chapter 81

1) A monetary policy strategy that uses a fixed exchange rate regime that ties the value of a currency to the currency of a large, low inflation country is called ________ targeting. A) exchange-rate B) currency C) monetary D) inflation

A

33) A speculative attack involves massive sales of a ______currency and purchases of a _______ currency that cause a sharp change in the exchange rate under a _________ exchange rate system. A) weak; strong; fixed B) strong; weak; fixed C) weak; strong; floating D) strong; weak; floating

A

4) Exchange-rate targeting allows a central bank to ________, thus this will ________ the probability of policy developing a time-inconsistency problem. A) be governed by a policy rule; decrease B) follow discretionary policy; decrease C) be governed by a policy rule; increase D) follow discretionary policy; increase

A

5) The fixed exchange rate regime established at a meeting in New Hampshire in 1944 created the ________, which was given the task of setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance of payments difficulties. A) IMF B) World Bank C) European Central Bank D) Bank of International Settlements

A

16) 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. A) depreciating; gain B) depreciating; loss C) appreciating; gain D) appreciating; loss

B

17) Under a fixed exchange rate regime, a central bank's attempt to keep its own currency from depreciating will result in ________ in its international reserves. A) a gain B) a loss C) no change D) an unknown effect

B

26) Policymakers may not want to see their country's currency appreciate because this would A) hurt consumers in their country by making foreign goods more expensive. B) hurt domestic businesses by making foreign goods cheaper in their country. C) increase inflation in their country. D) decrease the wealth of the country.

B

3) Expectations that the International Monetary Fund play the role of an international lender of last resort creates a serious moral hazard problem because ________ and other ________ of banking institutions expect that they will be protected if a crisis occurs. A) depositors; debtors B) depositors; creditors C) borrowers; debtors D) borrowers; creditors

B

3) The fixed exchange rate regime established at a meeting in New Hampshire in 1944 has been known as the A) General Agreement on Tariffs and Trade. B) Bretton Woods system. C) International Settlement Fund. D) The Gold Standard Agreement.

B

39) The Policy Trilemma states that a country or a monetary union can't pursue the following three policies at the same time A) capital control, a fixed exchange rate, and an independent monetary policy. B) free capital mobility, a fixed exchange rate, and an independent monetary policy. C) free capital mobility, a flexible exchange rate, and an independent monetary policy. D) capital control, a flexible exchange rate, and an independent monetary policy.

B

40) China chooses to have ________ and ________ and therefore, cannot have free capital mobility at the same time. A) a fixed exchange rate; no control of monetary policy B) a fixed exchange rate; an independent monetary policy C) a flexible exchange rate; an independent monetary policy D) a flexible exchange rate; no control of monetary policy

B

41) The United States chooses to have ________ and ________ and therefore, cannot have a fixed exchange rate at the same time. A) capital control; an independent monetary policy B) free capital mobility; an independent monetary policy C) free capital mobility; no control of monetary policy D) capital control; no control of monetary policy

B

6) A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called A) an unsterilized foreign exchange intervention. B) a sterilized foreign exchange intervention. C) an exchange rate feedback rule. D) a money neutral foreign exchange intervention.

B

6) The World Bank is an international organization that A) sets rules for how tariffs and quotas are set by countries. B) makes loans to low-income countries to finance projects such as dams and roads. C) makes loans to countries with foreign exchange reserves inadequate to maintaining a fixed exchange rate. D) helps developing countries that have been having difficulties in repaying their loans to come to terms with lenders in the West.

B

7) 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 ________. A) increase; appreciate B) increase; depreciate C) decrease; appreciate D) remain unchanged; depreciate

B

1) A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal decline in its international reserves and the monetary base, everything else held constant. A) sale; purchase B) sale; sale C) purchase; sale D) purchase; purchase

C

2) Under an exchange-rate targeting rule for monetary policy, a crawling peg A) fixes the value of the domestic currency to a commodity such as gold. B) fixes the value of the domestic currency to that of a large, low-inflation country. C) allows the domestic currency to depreciate at a steady rate so that inflation in the pegging country can be higher than that of the anchor country. D) allows the domestic currency to depreciate at a steady rate so that inflation in the pegging country can be lower than that of the anchor country.

C

2) When gold production was low in the 1870s and 1880s, the money supply grew ________ causing ________. A) rapidly; inflation B) rapidly; disinflation C) slowly; deflation D) slowly; disinflation

C

22) Under a fixed exchange rate regime, a central bank that does not want to acquire international reserves to keep its currency from ________ will decide to ________ its currency. A) depreciating; revalue B) depreciating; devalue C) appreciating; revalue D) appreciating; devalue

C

24) The current international financial system can best be described as a A) crawling-peg exchange rate system. B) fixed exchange rate system. C) hybrid of a fixed exchange rate and flexible exchange rate system. D) flexible-exchange rate rate system.

C

3) An advantage to exchange-rate targeting is it helps keep inflation under control by tying the inflation rate for ________ traded goods to what is found in the ________ country. A) domestically; anchor B) domestically, domestic C) internationally; anchor D) internationally; domestic

C

8) 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. A) expansionary; raise B) contractionary; raise C) expansionary; lower D) contractionary; lower

C

1) Under a gold standard in which one dollar could be turned in to the U.S. Treasury and exchanged for 1/20th of an ounce of gold and one German mark could be exchanged for 1/100th of an ounce of gold, an exchange rate of ________ marks to the dollar would stimulate a flow of gold from the United States to Germany. A) 7 B) 6 C) 5 D) 4

D

12) A central bank's attempt to prevent an appreciation of its currency can stimulate domestic inflation if the ________ of its currency leads to ________ international reserves which ________ the monetary base. A) purchase; higher; increases B) purchase; lower; decreases C) sale; lower; decreases D) sale; higher; increases

D

27) Under the current international financial system, the mission of the International Monetary Fund is: A) to maintain orderly foreign exchange markets B) to insure against the default of foreign bonds C) to lend to countries who run into government budget difficulties D) undefined

D

3) During the last ten years, the Chinese monetary authorities bought dollars and sold yuan to slow the yuan's appreciation, thus gaining international reserves. The huge purchase of international reserves meant that the Chinese monetary base began to ________, leading to ________ growth in the Chinese money supply. A) decline; sluggish B) decline; rapid C) grow; sluggish D) grow; rapid

D