Question

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

at the European Central Bank.

at the Federal Reserve.

in the letter of credit market.

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 P1 and 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 D1 to 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.