MACRO 19
The advantages of a flexible exchange rate include which of the following?..
-Allows government to be flexible in conducting domestic monetary policy. -Provides for the orderly, incremental adjustment of exchange rates rather than sudden jumps. -Allows government to be flexible in conducting domestic fiscal policy.
Which of the following flows of payments are measured in the financial and capital account?..
-Bond interest payments -Stock dividends -Purchase of ownership rights to foreign real estate
Which of the following are advantages of a fixed exchange rate?..
-Can force governments to make adjustments to meet their international problems. -Provides international monetary stability.
Which of the following are advantages of a common currency?..
-Firms can take advantage of economies of scale. -Ties countries close politically. -Prices become more transparent. -Reduces cost of trading among member countries.
Which of the following are disadvantages of a common currency?..
-Lost national identity. -Banking problems can easily spread.
True or false: When the private sector's supply of foreign currency is less than its demand for foreign currency, the private balance of payments is in deficit...
FALSE
When income rises, exchange rates are expected to...
Fall
Which of the following correctly describe the effect of contractionary monetary policy on the exchange rate, through its effect on income?...
Income falls, the supply of dollars falls, and the dollar exchange rate rises.
How does expansionary fiscal policy affect exchange rates via income?..
Income rises, imports increase, the supply of dollars increases, and the exchange rate value of the dollar falls.
Which of the following correctly describes the effect of expansionary monetary policy on the exchange rate through its effect on income?..
Income rises, the supply of dollars rises, and the dollar exchange rate falls.
Which of the following are disadvantages of a fixed exchange rate?..
It can force governments to make adjustments to meet their international problems.
What is the net effect of contractionary fiscal policy on the exchange rate?..
It is uncertain what happens to the exchange rate.
What is the net effect of expansionary fiscal policy on the exchange rate?..
It is uncertain what happens to the exchange rate.
How does expansionary fiscal policy affect exchange rates via the price level?..
Price level increases, decreasing the competitiveness of domestic producers, which reduces the demand for dollars, pushing the exchange rate down.
True or false: When the private balance of payments is in deficit, the private sector's supply of foreign currency is greater than its demand for foreign currency...
TRUE
Which of the following is always zero?..
The balance on the financial and capital account and the current account.
Which of the following best defines currency support?..
The buying of a currency by a government to maintain its value above its long-run equilibrium value.
The exchange rate falls...
The exchange rate falls.
What is the net effect of expansionary monetary policy on the exchange rate?..
The exchange rate falls.
What is the net effect of contractionary monetary policy on the exchange rate?..
The exchange rate rises.
Which of the following correctly describe the effect of contractionary monetary policy on the exchange rate, through its effect on the price level?..
The price level falls, U.S. goods become more competitive, the supply of dollars falls, and the exchange rate rises.
Which of the following correctly describe the effect of expansionary monetary policy on the exchange rate, through its effect on the price level?..
The price level rises, U.S. goods become less competitive, the supply of dollars rises, and the exchange rate falls.
The accounts that record all transactions between its residents and the residents of all foreign nations is called the _____...
balance of payments accounts
The value of goods and services exported and imported is known as the _____...
balance of trade
Currency stabilization is the...
buying and selling of a currency by the government to offset temporary fluctuations in supply and demand.
A lower interest rate...
decreases financial inflows, decreases the demand for dollars, and pushes down the value of the currency.
Purchasing power parity attempts to value currencies so that...
each currency can buy an equal basket of goods.
When the price level rises, exchange rates are expected to...
fall
A government that chooses an exchange rate and buys and sells its currency at that rate has a _____...
fixed exchange rate
When a government does not enter into foreign exchange markets at all, but leaves the determination of exchange rates totally up to currency traders, it has a _____...
flexible exchange rate
A partially flexible exchange rate is determined by the _____...
government and the market
A real exchange rate adjusts nominal exchange rates for differences in _____...
inflation
The buying and selling of a currency by the government to offset temporary fluctuations in supply and demand for currencies is known as currency _____...
stabilization
With a flexible exchange rate, the price of the currency is set by _____...
supply and demand
The balance of merchandise trade is best described as the difference between the...
value of goods exported and the value of goods imported.
