ECON 360 FINAL

How does a fall in the value of the pound sterling as shown in the diagram to the right affect British consumers ? How does this fall in the value of the pound affect American exporters?

Foreign goods are now relatively more expensive . British consumers are hurt Makes them worse off.

What factor did Not cause the U.S to shift its focus to more bilateral or plurilateral trade approach from a multilateral approach

Growing power of the U.S in the world economy allowed the U.S to choose its trade partners more carefully.

Labels of exports

Has been partially successful in telling consumers that a good is produced in humane and environmentally friendly ways. How,ever, involves some intrusion by foreign inspectors that perceived as an infringement of sovereignty.

A financial crisis

Spreads in an unpredictable manner

How does one explain he changing slope of the aggregate supply curve

The AS curve is more horizontal when the economy is below full employment and is more vertical when the economy is running at full employment

What is the main problem with imposing environmental standards ?

They can cause potential export industries to shut down in poor countries

The United States is currently running a current account deficit. If congress and the president wanted to reduce this, which policy could they use?

They could create an exchange rate depreciation policy

Subjugation to WTO declarations

This is not one of the alternatives to trade measures.

In the documentary played during class, "Inside Job"

We can see how financial innovation was a significant factor leading to the housing bubble

The geographic distribution of the consequences of the financial crisis is called

contagion effects

Which event is NOT usually associated with a financial crisis

currency convertibility crisis

Debt is money owed to non-residents and must be paid in foreign currency is known as

external debt

External Debt

is ubiquitous, or omnipresent-all countries have it

Which of the following is not a problem associated with fiscal policy ?

it is difficult to predict interest rates because a number of other factors also affect interest rates

if a home country forces home firms to follow the home environmental standards when home firms operate at home or in a foreign location

pressures for a race to the bottom will decrease

"Sudden Stops" are characterized by

sudden outflows of foreign portfolio investment

The multiplier effect is dampened by

taxes imports saving all of the above

The opportunity cost of money holdings is:

the alternative interest income foregone from not holding some other asset

The current account will increase if

the real exchange rate depreciates or disposable income goes down.

Countries official reserve assets are mostly composed of

other countries currencies

The trade-to-GDP ratio for the U.S changed by a factor of around ___from 1960 to 2010

+3

Assuming a flexible exchange rate system, a decrease in the money supply leads to ______, in the value of the U.S dollar and a ______ in the value of foreign currency. This in turn, lead to _____ in net exports and aggregate demand . A decrease in the money supply leads to _____ interest rates . This, in turn, leads to ____ in investment spending by the firms and aggregate demand .

- an increase -a decrease -a decrease - am increase - a decrease

- the adoption of identical standards may involve cultural issues, which in turn, may have political and economic overtones -Common standards have the potential to increase and expand the commercial ties between two or more countries -Requiring the same standards may cause a loss of efficiency if the adoption of a common standard results in a locking of an inferior standard. -Manufacturers able to produce to a single standard may be in position to capture economies of scale -The Move toward uniform standards may require the creation of a significant bureaucracy to seek compromises between to many options.

-D -A -D -A -D

Suppose the U.S dollar-euro exchange rate is 0.9 dollars per euro, and the U.S dollar-Mexican peso rate is .12 dollars per peso. What is the euro-peso?

.133 euros per Mexican Peso dollar per peso/ dollar per euro

Based on the information given in the diagram on the right, in which years would you have chosen to visit the tower of London rather than the Grand Canyon in Arizona?

1985-or 2001

If the U.K exports 14 billion British Pounds of products, and imports 10 Billion British pounds of products, its trade balance equals

4 Billion British Pounds

If the interest on a deposit in Euros is 6% per year, and the Euro is expected to depreciate against the U.S dollar by 1%, what does the interest parity condition imply about the interest rate on the deposit in U.S dollars?

5%

What type of exchange rate policy, in recent history , has been associated with higher probability of experiencing a crisis ?

A crawling peg exchange rate

Which of the following is not a positive of having a large trade deficit?

A large trade deficit accumulates foreign debt that must be serviced in the future.

Which of the following would be interested in holding foreign currency to take advantage of investment opportunities?

A portfolio manager

Which of the following would be interested in holding foreign currency to engage in transactions?

A tourist A manufacturing firm

Which of the following is a reason why the use of trade barriers to enforce labor or environmental standards may be less efficient than other measures?

All of the Above are reasons why trade barriers tend to be week enforcement mechanisms

How was the role of the IMF come under scrutiny in the recent discussion to reforms in the international financial architecture?

All of the above

Suppose the United States, Japan, and many other places around the world go into recession , but growth remains strong in Europe

All of the above

Which of the following is a way countries can minimize the probability of being hit by severe international financial crisis?

All of the above

What externalities at arise in a low income country after trade barriers are removed ?

All of the above are externalities.

When the dollar is worth less in relation to currencies of other countries.

American (domestic ) Products When the dollar is weaker When the dollar is stronger

A managed floating exchange rate refers to :

An exchange rate that is not pegged, but does not float freely.

Why is the trade-to-GDP ratio for Canada greater than that for the United States?

Because Canada has a smaller population and GDP, it cannot specialize producing as many goods.

Increasing international negotiations

Leaves it up to nations to collectively decide on their own methods of enforcement, but may put at a disadvantage those nations with little influence or bargaining power and may also lead to excessive bureaucratization.

A currency board, as exemplified by the particular case of Argentina:

Can achieve exchange rate stability and free capital movement, but effective monetary policy

Which of the following is not a reason for Canada proposing and signing the Canadian -U.S Free trade agreement?

Canada wanted to take advantage pf the currency in the United States

Which of the following is NOT an example of debt finance in developing countries?

Citibank purchases shares of a Brazilian firm on the stock market.

Which of the following was NOT a major productivity benefit of the increase in U>S and Canadian intraindustry trade?

Competition would allow wasteful social programs in Canada to be eliminated.

IN the documentary played during class, Inside Job, we can see that

Derivatives , default insurance, rating agencies' behavior all played important roles

Which of the following is NOT a reason why Mexcian migration has slowed ?

Economic conditions in Mexican border cities have improved.

Requiring home country standards

Eliminates the fear of a race-to-the-bottom and the shifts the costs of improved standards to firms and consumers the high-income .

________ must chose an exchange rate system to determine how prices in the home country currency are converted into prices in another country's currency

Every country

Which of the following is NOT a valid argument against a floating exchange rate regime?

Floating rates put some countries in a privileged position

In a crisis not caused by macroeconomic imbalances, economists are uncertain whether a country should try to guard against recession or try to defend its currency

If the policymakers decide tp defend the economy by reducing interest rates, this should help stabilized spending the raise output in the economy

The Current Account may fall after a real depreciation because:

Imports orders are placed in advance and a deprecation raises the domestic price .

Which of the following represents direct foreign investment?

Intel moves part of its production to a plant in Malaysia

The international debt crisis of early 1982 was precipitated when ____ could not pay its international debts

Mexico

Which of the following is not true regarding international financial crisis

One cause of an international financial crisis is a sudden appreciation in an economy's currency, making the currency's value rise above the equilibrium rate .

Which of the following is not of the three ways for countries to handle different standards abroad? In order for countries to be integrated, standards

Optimization of standards. can differ , even persistently

A self-fulfilling currency crisis implies:

Outflows caused by a change in expectations about returns on the investment resulted in a possibly unnecessary crisis.

Which of the following is not a reason for Mexico proposing and signing the NAFTA?

The Mexican government wanted to borrow more in order to spend and stimulate the national economy

What can be said about the future role for the U.S in the world economy?

The U.S needs to become more cognizant of and integrate into the economic success of other countries

Under a Gold Standard

The exchange rate is fixed

Which economic institution determines or controls the money supply in the U.S?

The federal reserve

A contract that contains a promise that specified amount of foreign currency will be delivered on the specified date in the future is traded in which of the following?

The forward market

A J-curve describes

The gradual effect of the real depreciation on the current account

Which of the following is not a factor determining the number of immigrants to the United States from Mexico ?

The political party that is in power in the presidency and the congress of the United States .

Which of the following is correct?

The president and Congress conduct fiscal policy and the federal reserve conducts monetary policy.

Which of the following are examples of foreign direct investment ?

The purchase of land and a manufacturing plant near Mexico City , by a U.S-owned firm

Which of the following is a pro to imposing capital controls as a means of preventing crisis?

The use of capital controls helps minimize the volatility of the capital market and the risks associated with it.

During the second half of the 1980's , the United States depreciated the dollar in hopes that it would reduce the current account deficit. After a year, the deficit was actually larger and the newspaper editorialists were writing columns claiming that there is no link between the exchange rate and the current account. What did the writers not account for in their claims?

There are lags associated with implemented policies.

In the documentary played during class. "Stealing Africa, why poverty" the turning point in the story of Zambia's development as presented in the documentary , as we agreed during class, is:

When the country receives external loans with conditionality.

In the text, the point is made that the expectation of a crisis from volatile capital flows is sometimes a self-fulfilling crisis. Which of the following does not contribute to a crisis developing as the self-fulfillment of the expectation of a crisis?

When there is a marcoeconomic imbalance, such as large government deficits currency swings could occur that may begin to create volatile capital flows .

In the documentary played during class, The true cost, we can see that

Workers in Bangladesh are exploited and US cotton growers suffer a negative externality .

In an open economy holding GNP and consumption spending constant and where private savings equals domestic investment a government budget deficit must be matched by:

a current account deficit

which of the following assets is the least liquid

a house

Between 1960 and 2008 U.S manufacturing experienced

a large increase in value-added and a small decrease in employment

Harmonization of standards implies that countries decide to

adopt a common set of standards in an area of concern, such as product safety of labor.

Which of the following is a reason that assisted in the Mexican economy having market reforms and market opening in the mid-1980's

all of the above

A pollution haven is said to exist when

an economic activity becomes concentrated in countries or regions having less strict environmental controls than elsewhere

A temporary tariff on imported foreign goods is an example of

an expenditure switching policy

If the central bank purchases assets (e.g bonds from bonds) , the economic result is :

an increase in the money supply

When there is more rapid growth in Canada than in the United States Due to this change, the U.S dollar will _______ the Canadian dollar will_______, and the length of the effect will be ____

appreciate depreciate medium run

The multiplier effect is dampened by

imports taxes saving All of the Above

An increase in domestic interest rates are likely to ____ aggregate demand

decrease

When there is a change in government spending or taxed to affect aggregate economic activity, this is referred to as

fiscal policy

In the documentary played during class, Harvest of empire, we can see that

foreign policy often leads to regime change and massive migration .

Securitization refers to the practice where a financial institution will

group a large number loans together, and sell shares in the entire package of loans

Government policies towards the financial crisis sector are often characterized by moral hazard, since governments often

have an incentive to help the financial sector, even if the finance industry has problems of its own making, since the financial sector is important to the economy as a whole.

In a fixed exchange rate system, how do countries address the problem of currency market pressures that threaten to lower or raise the value of their currency?

if demand rises, countries must fill the excess demand for foreign currency by selling their reserves. if the demand, falls then countries must increase demand by buying up excess supply with domestic currency.

Which of the following is a con for defending a country's currency?

if policymakers decide to defend the currency by raising interest rates, they would be sending economy into a recession

what is the main problem with imposing labor standards to prevent child labor and poor working conditions in the exporting sector of a less-developed country?

less-developed countries are opposed to them.

In a banking crisis, disintermediation occurs as banks

lose their ability to intermediate savers and borrowers

when the money supply is changed to affect aggregate economic activity, this is referred to as

monetary policy

Labor standards are

multifaceted, covering both basic rights ( freedom form forced labor) as well as civic rights (union representation ) -dissimilar

Which of the following is not a problem associated with monetary policy

none of the above

When a government (typically corrupt) incurs debt without the consent of the people and the debt is not used for people's benefit, the debt is

odious

Your country has a positive International Position (IIP) with another country. This statement means

your country's citizens own more assets in the other country than the other country's citizens own in your country.