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