Question 1
Which of the following is NOT a function of the International Monetary Fund?
Answer
| a. | Serve as lender of last resort for national governments | b. | Administer an international foreign exchange system | c. | Establish the SDR system nations utilize to settle international payment obligations | d. | Establish and administer each nation's fiscal and monetary policies |
5 points Question 2
A summary of a country's economic transactions with foreign residents and governments is called the
Answer
| a. | current account balance. | b. | capital account balance. | c. | balance of trade. | d. | balance of payments. |
5 points Question 3
Special Drawing Rights are
Answer
| a. | a reserve asset created by the International Monetary Fund that can be used to settle international payments. | b. | loans granted by the International Monetary Fund to countries that experience balance of payments problems. | c. | the term given for official reserves taken as a whole. | d. | financial assets held by the U.S. Treasury Department. |
5 points Question 4
Which of the following would contribute to a positive trade balance for a country?
Answer
| a. | Having tourists visit the country | b. | Importing textiles | c. | Having foreign residents buy the government bonds of the country | d. | Importing financial services |
5 points Question 5
With a dirty float system,
Answer
| a. | market forces and the country's stock of gold determine its exchange rate. | b. | central banks may intervene to affect the value of a country's currency. | c. | market forces do not play a role in determining the value of a currency. | d. | the International Monetary Fund and the Groups of Five and Seven determine fixed exchange rates. |
5 points Question 6
All of the following are surplus items on a country's balance of payments EXCEPT
Answer
| a. | gold sales to foreigners. | b. | exports. | c. | foreign tourists' expenditures in the host country. | d. | purchase of foreign assets. |
5 points Question 7
Country X-2002 Transactions (billions of dollars)The merchandise trade balance for Country X is ________ billion dollars. (See the above table.)
Answer
| a. | +100 | b. | -150 | c. | +150 | d. | -10 |
5 points Question 8
The gold standard is
Answer
| a. | a type of floating exchange rate system. | b. | a type of managed flexible exchange rate system. | c. | a type of fixed exchange rate system. | d. | a purely floating exchange rate system. |
5 points Question 9
Exchanging dollars for euros to pay a computer manufacturer in Belgium would occur
Answer
| a. | at the European Central Bank. | b. | at the Federal Reserve. | c. | in the letter of credit market. | d. | in the foreign exchange market. |
5 points Question 10
Since all currencies had values fixed in units of gold under the gold standard
Answer
| a. | exchange rates were essentially floating. | b. | exchange rates were set to a crawling peg. | c. | exchange rates were essentially fixed. | d. | none of these |
5 points Question 11
In the above figure, suppose the value of the French franc is P
1and U.S. demand for French wine declines. The effect on the franc can be shown by
Answer
| a. | an increase in the value of the franc to P2. | b. | the excess demand of franc equal to Q3- Q1. | c. | the decrease in the value of the franc to P0. | d. | a shift in the demand for francs from D1to D0, but no change in the value of the franc. |
5 points Question 12
Under a flexible exchange rate system, a decrease in the value of a domestic currency in terms of foreign currencies is referred to as
Answer
| a. | an appreciation. | b. | a depreciation. | c. | a devaluation. | d. | a revaluation. |
5 points Question 13
Under a flexible exchange rate system, an increase in the value of the U.S. dollar in terms of other currencies is referred to as
Answer
| a. | a depreciation of the U.S. dollar. | b. | an appreciation of the U.S. dollar. | c. | a monetizing of the U.S. dollar. | d. | a devaluation of the U.S. dollar. |
5 points Question 14
An important problem with the gold standard was that
Answer
| a. | one country could easily manipulate the system to its advantage and the disadvantage of other countries. | b. | a country did not have control of its domestic monetary policy. | c. | exchange rates tended to fluctuate a great deal, making it difficult for businesses to make long-run plans. | d. | it was too complicated and restricted business activity. |
5 points Question 15
The supply of U.S. dollars on foreign exchange markets is
Answer
| a. | derived from the supply of U.S. goods. | b. | derived from the demand by United States for imported goods and services. | c. | determined directly by open market operations at the Federal Reserve Bank. | d. | derived from the demand for U.S. products by foreigners. |
5 points Question 16
If the exchange rate is such that $1 equals 5 euros, then the price of a euro is
Answer
| a. | $5. | b. | $1. | c. | $0.40. | d. | $0.20. |
5 points Question 17
Which of the following is a determinant of exchange rates?
Answer
| a. | A change in consumer preferences | b. | A change in productivity | c. | A change in real interest rates | d. | all of these |
5 points Question 18
If the dollar used to buy 100 yen and now buys 360 yen, there has been
Answer
| a. | appreciation of the dollar. | b. | depreciation of the dollar. | c. | appreciation of the yen. | d. | an increase in special drawing rights. |
5 points Question 19
A problem with the operation of the gold standard in the world economy was that
Answer
| a. | it involved too much government intervention in the economy. | b. | the world economy was subject to too much inflation. | c. | a country didn't have control of its domestic monetary policy. | d. | it caused the Great Depression. |
5 points Question 20
Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners, we expect
Answer
| a. | political instability in the United States. | b. | a worsening of the U.S. balance of payments. | c. | an appreciation of U.S. currency. | d. | that a "dirty float" will emerge. |