国际经济学习题

国际经济学习 1. An annual statement of all the transactions between one country and the rest of the world, is called that country's: a. dollar outpayments. b. international transactions statement. c. current capital campaign. d. all of the above 2. In the international transactions statement, merchandise trade, exchange of services and transfers of capital are divided into those giving rise to __________________ (plus or credit items) and those resulting in ______________________ (negative or debit items). a. credit accounts and credit debits b. dollars and capital c. currents and accounts d. dollar inpayments and dollar outpayments 3. The current account component of the statement includes transactions in goods and services; while purchases and sales of assets make up the: a. capital account. b. current capital. c. current purchases. d. none of the above 4. In terms of the current account, if US merchandise exports total 900 million dollars and US merchandise imports total 1500 million dollars, then the balance of trade on US merchandise trade would be: a. a 2100 million dollar credit. b. 2100 million dollars. c. a 600 million dollar deficit. d. a 900 million dollar deficit. 5. If the balance of trade totals a $600 billion deficit and service transactions netted a total surplus of $200 billion, then the balance on goods and services would be: a. a $400 billion deficit. b. an $800 billion surplus. c. an $800 billion deficit. d. a $400 billion surplus. 6. Competitive position for both the importing and exporting countries as well as the income of the _____________________ country are considered the determinants of trade. a. exporting b. developing c. reserving d. importing 7. The balance on current account includes which of the following: I. exports minus imports of goods and services II. income receipts on US assets abroad minus income payment on foreign assets in the US III. unilateral transfers, which include private remittances and government foreign aid IV. income flows from import transfers minus US capital investments a. I and IV b. I, II, III c. II, III d. None of the above 8. International purchases or sales of assets which are part of the capital account statement include the net of: a. purchases of foreign stocks, bonds and bank accounts by Americans. b. direct foreign investment abroad by American corporations. c. US government loans to foreign countries minus repayments. d. all of the above 9. An imbalance or deficit of $36 billion in the overall balance of autonomous transactions, which occur through general economic conditions, would result in the use of gold, official foreign currency reserves and official debt, that are known as balancing or: a. deficit currencies. b. foreign rights. c. accommodating items. d. none of the above 10. The overall balance of autonomous transactions (sum of private transactions in the current and capital accounts) is called the: a. official reserve transactions balance. b. deficit items statement. c. currency reservation chart. d. a and c 11. A country buys and sells its own _______________ in order to raise and lower the value of their _________________. a. prices b. currency c. balances d. all of the above 12. If a country buys and sells its own currency in order to raise and lower the value of their exchange rate, then how do other country's exchange rates affect US liabilities? a. Many countries buy and sell their currency in terms of dollars when intervening on behalf of their exchange rate. b. Changes in foreign holdings of assets in dollars directly increases or decreases US reserve holdings and US liabilities. c. The higher the US can raise its own exchange rate, the less it will ever have to payback in terms of liabilities to other superpowers. d. a and b 13. If foreign official assets in US dollars rise $30 billion and the US official reserves do not change, then the US will experience a $30 billion liability to foreign central banks, or _________________. a. change in official reserves b. central bank rates c. loan default d. b and c 14. Japan's external surplus, represented in the equation X-M=S-I, shows that their amount of export beyond imports of goods and services is the same as the amount of: a. domestic savings in excess of domestic investment. b. domestic savings that should occur in order to keep the exchange rate stable on world markets. c. domestic investment that must be made in order to sustain full employment. d. b and c 15. The United States' external deficit can be represented by the following equation: a. X-I=S+MI b. X=M+S-I c. M-X=Ix-S d. a and b 16. What differences between states and countries makes it useless for states to publish annual transaction statements? a. States don't collect data on their economic transactions with the rest of the world. b. Surpluses or deficits are only seen as booming or depressed zones, respectively, since states cannot pursue independent economic policies. c. National governments can pursue fiscal, monetary, commercial and exchange rate policies, states cannot. d. all of the above 17. Currencies of most industrialized nations are freely convertible to one another at a ratio of the number of units of one currency that are exchangeable for a unit of another. This ratio is known as the: a. inverse rate. b. market current. c. exchange rate. d. current flow of currency. 18. If the dollar-yen exchange rate is ?1=1?, then $1=?100 is called the: a. times 100 rate. b. rate of return. c. inverse of exchange rate. d. b and c 19. The foreign exchange market: a. is where currencies are traded and exchange rates determined. b. averages $1.5 million of currency trading per year. c. has its biggest markets in Detroit, Moscow and Beijing. d. all of the above 20. The difference between a freely floating or fluctuating exchange rate and a managed float exchange rate is: a. under managed float government intervention plays a role in determining the exchange rate. b. free floating or fluctuating exchange rates can only appreciate or depreciate by 5 units per day. c. the equilibrium exchange rate is always higher for managed float rates. d. all of the above 21. If the dollar-euro exchange rate moved from $1=0.5? to $1=1?, then the dollar would have ___________________ and the euro would have _______________________. a. depreciated; decreased b. appreciated; depreciated c. fluctuated; improved d. supplied; demanded 22. Increases in U.S. interest rates raise the exchange value of the dollar by: a. forcing other countries to get rid of dollars. b. lowering demand for the dollar. c. raising demand for the dollar. d. none of the above 23. Increasing the money supply through monetary expansion causes inflation and price increases which, in turn, causes _________________ in interest rates, the exchange rate and demand for the dollar. a. increases b. decreases c. triangular floats d. long positions 24. The exchange rate is very sensitive to even anticipated changes in money supply (monetary policy), because monetary policy affects: a. both price and interest rates. b. the treasury and executive branches. c. goods and services. d. quantity and supply. 25. Prices and wages are inflexible and don't change much in the short run (e.g., wage contracts are negotiated only once every few years), while the exchange rate adjusts immediately and temporarily absorbs the entire impact of a change in money supply. In other words, the exchange rate's short-term response is greater than its long-run response, a phenomenon called __________________. a. spearheading b. hyperinflationary transferring c. Euro-Zone defense d. overshooting 26. If the exchange rate reflects the relative purchasing power of currencies, then when $1 buys the same quantity of goods and services in the United States as ?100 buys in Japan, the long-run exchange rate should be $1 = ?100. Because exchange rates are affected by more than price levels, and the representative basket of goods differs from country to country, this doctrine, known as _________________, is not always accurate. a. overvaluation b. long-run equilibrium c. Big Mac test d. purchasing power parity 27. In the hope of realizing profits, speculators often buy or sell currency based on the expectation that a small or expected change in the value of a currency may trigger further movement in the same direction. This phenomenon is said to be partly responsible for the dollar's appreciation in late 1984 and is called a: a. big mistake. b. pipe dream. c. speculative bubble. d. speculation trigger. 28. Most currencies of the industrial countries function under a managed float, which involves central banks intervening to affect exchange rates and official reserves. This policy does not take advantage of the freely floating exchange rate's ability to: a. equate private inpayments and outpayments and avoid any overall imbalance. b. clear the market with capital transfers outweighing payments. c. simultaneously overshoot and undershoot. d. all of the above 29. The foreign exchange market consists of: a. financial institutions, such as insurance companies, and mortgage brokers. b. commercial banks, corporations, financial institutions and central banks. c. stock exchange officials and specialized foreign exchange brokers. d. none of the above 30. Taking advantage of price differentials between two locations yields riskless profit, assures the exchange rate is the same in all markets and is called: a. arbitrage. b. cross rate. c. triangulation. d. easy money. 15. Cross rates are exchange rates between: a. three foreign exchange markets using dollars. b. Paris, Tokyo and Switzerland. c. two non-dollar currencies. d. none of the above 31. By purchasing currencies which are undervalued in some locations (taking advantage of existing price differential between geographical locations), arbitragers actually affect currency supply and demand until exchange rates are orderly and the same in all markets. This process is called: a. triangular arbitrage. b. cross rate reduction. c. currency normalization. d. all of the above 32. While the spot exchange rate governs transactions to be consummated within two days, the forward exchange rate governs transactions to be consummated in the future (but known today) and protects importers against changes in exchange values between the time of order and payment. This protection is called: a. lowballing. b. delaying. c. hedging. d. dodging. 33. The interest rate parity stipulates that the relation between the spot and forward rates depends on the: a. interest rate differential between the two financial markets. b. exchange rate differential. c. short and long position between markets. d. vehicle currency depreciation. 34. Unlike arbitrage, __________________ involves risk in either the spot or forward markets because it does not involve the taking of covered positions. a. short relations b. dollar premium c. depreciation d. speculation 35. Speculators take a _______________ position when they sell foreign currency forward without already owning that amount of currency but expect to buy it at a lower spot rate when the contract matures. They take a ___________________ position when they purchase foreign currency forward without having a buyer or any obligation to make a spot payment of that currency. a. long; short b. fast; slow c. short; long d. delivery; fluctuating 36. ______________ are not permitted to fluctuate freely on the market or to respond to daily changes in demand and supply, because their value is set by the government. a. Devaluations b. Fixed exchange rates c. Basket-peggers d. Intervention currency rates 37. In a fixed exchange rate system, if market forces pushed the exchange rate out of predetermined levels, then the government would buy or sell foreign currencies to create a discrete decrease, called _______________, or increase, called ________________, in the currency's value. a. fixed rates and long rates b. pegging and limping c. devaluation and revaluation d. all of the above 38. If the European Central Bank buys dollars in exchange for euros when the rate is $1 = 0.9? and sells dollars in exchange for euros when the rate is $1 = 1.1?, then 1.1? to 0.9? is said to represent the upper and lower support limits or the ___________________. a. band b. stretch c. tension d. slide 39. In the previous example, why does the ECB (European Central Bank) buy and sell reserve holdings in dollars? a. They want to devalue the dollar. b. All central banks operate only in dollars, the worldwide accepted currency. c. Since a country's money supply is measured by the domestic currency held outside its central bank, its international reserves are then held in the form of foreign currencies. d. a and b 40. In the previous examples, $1 = 0.9? is the point at the top of the band or spread where the local currency (euros) rises to its upper support limit and is often called the: a. unsterilized point b. sterilization limit c. inpayment level d. dollar buying point 41. Currency intervention, like buying dollars for euros, that affects the money supply--as in the last example where the ECB increased the money supply to bring the euro down from its upper support limit--is referred to as ________________ intervention. a. unsterilized b. unmanaged c. divergent d. hostile 42. The more common type of currency intervention is sterilized intervention, which avoids affecting the money supply because: a. foreign countries sell off all their reserves. b. the central bank sells government bonds to "soak up" or offset the increase in money supply. c. the central bank destroys an agreed upon amount of money. d. none of the above 43. At the dollar selling point, the European Central Bank sells its reserve dollars for euros. What condition causes this action, and how does the action affect the euro? a. When the value of the euros goes too high, the central bank sells dollars for euros to decrease the euro value. b. By selling reserve dollars for euros, the ECB increases the supply of dollars out in the world to raise its value. c. By selling dollars for euros the ECB serves as a role model and hopes all central banks will do the same. d. When the value drops to its lowest support limit, the central bank buys up euros to contract the money supply and increase its value. 44. During the period known as the gold standard (1870-1914), gold was the official reserve asset and the common denominator in terms of which all currencies as well as the exchange ratios between these currencies were: a. unsterilized. b. divided. c. floated. d. fixed. 45. After WWII, during the Bretton Woods period of 1944-1973 gold was replaced by _________________ as the common denominator fixing all currencies. a. silver b. the euro c. the U.S. dollar d. none of the above 46. During the Bretton Woods period, the U.S. dollar served as the currency system's common denominator and official reserve currency. Because each central bank intervened in dollars (bought or sold dollars for its own currency) in its own market to keep its exchange rate fixed, the dollar was also considered the: a. intervention currency. b. capital unload currency. c. bailout money. d. revaluation fund. 47. Since March 19, 1973 the international currency system has been a mix of _____________. a. good and bad currencies b. fixed and floating exchange rates c. gold and U.S. dollar pegged currencies d. intervention and devalued currencies 48. Exchange rates that are maintained through sales or purchases of government bonds are called ____________________ , as is the case with the British pound sterling, Japanese yen and __________________. a. managed floats; Canadian, Australian and U.S. dollars b. free floats; U.S. dollar c. pegged rates; Canadian dollar d. none of the above 49. While other countries still primarily conduct interventions in dollars, the United States uses ___________________. a. marks and pounds b. yen and marks c. pesos and shekels d. euros and yen 50. The first major currency not backed by a single government is the ____________, a managed float currency overseen by the European Central Bank and adopted by 12 countries. a. Euro Zone b. euro c. pound sterling d. Euro dollars 51. Numerous developing countries fix their exchange rates either to a single currency or group of currencies. Another name for fixed rates of this kind is: a. pegged rates. b. dollarized rates. c. under dollar rates. d. sold rates. 52. Countries that peg their currencies to a weighted average value of major currencies are called _________________, as opposed to __________________, who peg their currencies to one major currency. a. group-pegger; major peggers b. peg averagers; peg unifiers c. major pegs; minor pegs d. basket-peggers; single-currency peggers 53. Currencies can be pegged by: a. establishing a currency board that issues domestic currency only when it is covered by 100 percent foreign exchange reserves. b. abandoning the country's own currency in favor of another currency. c. a and b. d. none of the above 54. Euro dollars are: a. euros. b. euros converted to dollars. c. Austrian dollars held in U.S. accounts. d. dollar accounts in overseas banks. 55. A vehicle currency is used: a. to buy foreign automobiles or automobile parts. b. to damage another country's currency. c. to raise interest rates. d. as an intermediary transaction currency when no exchange market exists between two currencies. 56. Although the dollar no longer serves as the common denominator of the currency systems as was the case under Bretton Woods, which of the following are true about the dollar's position? I. The dollar retains a reference role, as many countries measure their fluctuations in terms of the dollar, and the dollar is the main intervention currency for managed float currencies. II. The dollar is the main official reserve currency, but is no longer the main vehicle currency (intermediary conversion when no market exists between currencies such as Israeli shekels to Norwegian crowns). III. The dollar is the main international transactions currency for the private sector; people and institutions worldwide maintain dollar accounts (or Euro dollars) in their countries and bill and finance transactions in dollars. a. I only b. II only c. I and III d. I, II and III 57. The incompatible trinity includes: a. fixed exchange rate, independent monetary policy and free capital movements. b. the U.S. dollar, the euro, and the Japanese yen. c. single-currency peggers, managed floats, and exchange rates. d. none of the above 58. The U.S. real bilateral exchange rate is the exchange of value of the dollar relative to __________________ adjusted for the inflation differential between the United States and that country. The U.S. real trade-weighted exchange rate, on the other hand, is an index showing variations in the ____________________, adjusted for inflation differentials. a. the euro and euro and the Japanese yen b. the IMF and effective exchange rate and conditionality provisions c. another single currency and dollars' bilateral exchange rates with all other major currencies d. none of the above 59. Under _________________, the International Monetary Fund (IMF), a Washington based organization of 183 countries offering financial assistance and advice to countries in need, requires a borrowing country to follow certain fiscal and monetary policies to insure its return to economic health. a. surveillance b. SDRs c. fixed exchange rates d. conditionality provisions 60. Special Drawing Rights refers to: a. reserve assets created by the IMF. b. a weighted average of the dollar, euro, Japanese yen and British pound sterling. c. assets introduced in the early 1970s and used to settle imbalances between IMF member countries. d. all of the above 61. Each country's official reserves consist of: a. inconvertible foreign currencies and silver. b. convertible foreign currencies, gold, reserve position in the IMF and SDRs. c. SDRs and U.S. dollars. d. all of the above 62. A country in deficit experiences multiple ________________ in its money supply, bank deposits and imports; while a country experiencing a surplus has a multiple _________________ in its money supply, bank deposits and imports. a. expansion and reduction b. decreases and increases c. devaluation and incubation d. saturation and drought 63. Under the gold standard the idea that central banks should contract money supply in a deficit and expand money supply in case of a surplus came to be called the: a. Keynesian position. b. velocity constant. c. specie-flow mechanism. d. all of the above 64. John Maynard Keynes challenged the specie-flow mechanism's premises that real output and __________________ are constant. a. velocity, or the number of times per year the average dollar changes hands to finance final goods and services b. velocity, or the real volume of preliminary goods and services provided during the year c. the aggregate price level index d. the quantity of money in circulation 65. The effect of a deficit in the current account is related to the proportion of any income reduction translated into reduced consumption, savings or imports, otherwise known as: a. MPC, MPS and MPM. b. marginal spending, decreased savings and loss of imports. c. c/p, s/p and m/p. d. none of the above 66. From the marginal propensities to consume, save and import, we can see that income is an important determinant of ___________________. a. multiplication b. shipping c. elasticities d. imports 67. The inverse of the sum of the marginal propensities to save and to import equals the: a. multiplier. b. ratio between total effect and primary impact. c. ratio of rise in income to the rise in investment that created it. d. all of the above 68. If MPC = 2/3, MPS = 1/3, and MPM = 1/3, then what is the value of the foreign trade multiplier? a. 3 b. 2 c. 6 d. 3/2 69. In the example above, if the original increase in investment equaled $200 million, then what would be the final increase in income? a. $600 million b. $300 million c. $1200 million d. $100 million 70. How does a developed surplus, which increases income by a multiple of that surplus, work towards its own reversal or towards adjustment/equilibrium of the current account? a. The increase in income creates more income from exports and less spending on imports. b. The increase in income causes more outpayments for imports and decreased inpayments from exports. c. a and b d. none of the above 71. The two automatic adjustment mechanisms that partially resolve deficits or surpluses are: a. the employment and sterilization processes. b. the inflation and export mechanisms. c. the expenditures-income and money supply-prices mechanisms. d. a and b. 72. Monetary policies influence the economy through control of __________________, while fiscal policies affect ____________________. a. the money supply and government revenues/expenditures b. wages and the printing of new money c. the removal of useless coins and the interest rate d. none of the above 73. In 1996, when the IMF loaned Russia $10 billion, the IMF required Russia to tighten its fiscal policy. This type of demand is called the IMF's: a. investment guides. b. loan rules. c. price rate positionings. d. conditionality policies. 74. To reinforce automatic adjustment mechanisms, countries pursue specific fiscal (raising/lowering taxes on governmental expenditures) and monetary (contracting/expanding the money supply) policies called ______________________. a. conditionality b. expenditure-changing policies c. inflation reduction notes d. deficit or surplus busting 75. Investment in foreign bonds, stock, commercial paper, bank accounts, etc. is called: a. foreign money. b. portfolio capital. c. soft currency addendums. d. all of the above 76. The portfolio approach suggests that focusing on portfolio capital and hoping to affect foreign capital movement with interest rate changes is ineffective because: a. domestic and foreign assets are not perfect substitutes. b. investors divide their wealth between domestic and foreign assets to protect against risk. c. even if they are willing to shift a portion of their holdings in order to take advantage of interest rates, they prefer to remain diversified. d. all of the above 77. The system of fixed exchange rates means that developments in a large country affect its trading partners' economies. This effect is referred to as: a. the domino theory. b. the ping-pong philosophy. c. foreign repercussions. d. economic avalanche. 78. The United States was considered a locomotive country during 1995-2000 because its economic growth: a. created more jobs for train engineers. b. pulled other countries' economies upward. c. came without new taxes. d. a and c. 79. Because both the domestic recession and balance of payments surplus that Japan experienced in the 1990s required expansionary fiscal and monetary policies, Japan was said to be in a: a. consistent situation. b. inconsistent locomotion. c. fluctuation increase. d. coefficient elasticity. 80. Anytime domestic and external conditions require opposite policies, a country finds itself in an inconsistent situation. Examples of inconsistent situations would be unemployment and deficit or ___________________. In such a situation, ___________________ are the only solution. a. inflation and deficit, trade negotiations b. inflation and surplus, changes in the exchange rate c. inflation and deficit, strict tariffs d. none of the above 81. Unemployment and surplus both require ___________________ policies, while inflation and deficit require ___________________ policies. a. expansionary and contractionary b. tight and loose c. floating and fixed d. all of the above 82. Other than the direction that policies move the economy, the government must also know ______________________ before deciding on economic policies. a. worldwide exchange rates and central bank policies b. IMF conditionality and the multiplier c. the degree of impact and time lags d. none of the above 83. The branch of economics that studies time lag and doses of each policy needed to fix an imbalance is called: a. openness studies. b. industrial phrenology. c. corrective testing. d. econometrics. 84. What are the two time lags common to almost all external policies? a. The two lags are discretionary and rate reduction lags. b. The two lags are the time it takes policy makers to see the need for economic action and the time it takes economic action to be initiated. c. The two lags are consistent and inconsistent lags. d. The two lags are the time required to lower interest rates and the time required for tariffs to take effect. 85. How would a depreciation of the euro from $1.20 to $0.80 affect a European Union country's unemployment and current account deficit? a. Depreciating the euro would result in decreased profits and increased debts. b. The currency depreciation would decrease the external deficit by decreasing the cost of the country's goods and services, therefore making their products more competitive at home and abroad. c. It would expand the money supply, causing endless inflation. d. all of the above 86. The relative effect of a decrease in price that comes with currency depreciation depends upon: a. the corresponding increase in purchases. b. unemployment rates at the time. c. the central bank's willingness to increase the money supply. d. none of the above 87. Demand elasticity is: a. relatively elastic, of unitary elasticity or relatively inelastic. b. greater than, equal to or lesser than one. c. a measurement of the degree of changes in purchases in response to a change in price. d. all of the above 88. After a currency depreciation, a country with an external deficit would prefer what type of elasticity? a. Relative inelasticity would help by lowering sales and overall sales value. b. Demand of unitary elasticity would be best due to the stability of dollar value. c. It would prefer relative elasticity, which would result in increased purchases and therefore more income or dollar value to combat the deficit. d. none of the above 89. Unlike the inverse relationship of price and quantity in demand elasticity, in supply elasticity: a. there is a direct relation between price and quantity. b. as price rises so does the quantity supplied. c. price and quantity do not appear on the same graph. d. a and b. 90. Based on fluctuations in the $ = ? exchange rate shown in figure 14.5 below, how would you expect Japanese auto sales to be affected between 1994 and 1995 in the U.S.? Between 1995 and 1996? Figure 14.5 a. The decreased value of the dollar and corresponding increase in the yen made Japanese cars relatively more expensive and less competitive between 1994 and 1995. But the decreased value of the yen between 1995 and 1996 increased sales of Japanese cars in the U.S. due to the decreased price. b. The increased value of the yen caused more Americans to buy Japanese cars between 1994 and 1995, because they knew the yen was worth much more than the dollar. Between 1995 and 1996, the decreased value of the yen made Japanese cars cheaper and more competitive here. c. Sales of Japanese cars in the United States would never change due to dollar/yen fluctuations. d. none of the above 91. According to the stability or elasticity condition, if the U.K.'s import-demand elasticity and demand elasticity for its exports add up to more than one, then: a. the U.K. will experience a massive external debt. b. currency devaluation will improve the U.K.'s current account. c. inflation and unemployment will skyrocket. d. the U.K. will win the World Cup. 92. Because the thinking about exchange rate adjustments relies on price changes inducing residents to move their purchases from exports to domestic substitutes (or vice versa), it is known as: a. a dangerous proposition. b. an expenditure-switching policy. c. an anti-foreign theory. d. a pipe-dream. 93. In order to avoid inflation and a shift back towards imports, policy makers considering currency devaluation must be extremely aware of elasticity conditions and allow for the offsetting: a. interest rates and overemployment. b. multiplier and petrodollars. c. domestic price and income effects. d. velocity and savings. 94. Despite concerns with domestic price and income effects, depreciation brings about positive redistribution of resources. These resource redistribution effects refer to the fact that: a. prices rise more in foreign-trade industries (exports and import substitutes) than in purely domestic industries. b. the price ratio of traded to nontraded goods increases. c. devaluation diverts resources from nontradable sectors to the export and import-substitute sectors. d. all of the above 95. Analysis focusing on domestic price, domestic income, domestic resource allocation and domestic employment all consider product market elasticities one-by-one and therefore part of the: a. elasticity approach to depreciation. b. "no new taxes" plan of depreciation. c. domestic approach. d. domestic stability initiative. 96. The absorption approach to depreciation focuses on the relation between: a. elasticity of demand and elasticity of supply. b. taxes and gold reserves. c. the current account and domestic conditions. d. none of the above 97. Since it lowers inpayment and/or increases outpayments, ___________________ is best suited to help a country experiencing current account surpluses and inflationary booms. On the other hand, since __________________ improves the balance of payments and expands output and employment, it is best suited for dealing with domestic unemployment and external deficits. a. elasticity and absorption b. appreciation and depreciation c. specie-flow and Dutch disease d. a and b 98. Rarely can one instrument or policy properly address more than one target or problem. For example, in 1996 Pakistan both devalued the rupee and instituted a contractionary fiscal policy. In order to satisfy external and internal objectives, a country must utilize: a. a policy mix. b. GDP manipulation. c. forced expenditure-changing. d. a Bretton Woods system. 99. Dutch disease describes how a newly discovered natural resource can have drastic effects on an industrial economy. For example, when the United Kingdom discovered oil in the 1970s, the pound sterling appreciated and inflation dampened. But, in the long run: a. interest rates plummeted and unemployment skyrocketed. b. the industrial sector grew dangerously out of control. c. the manufacturing/industrial sector deteriorated sharply. d. none of the above 100. Absolute purchasing power parity could compare average price levels of ?1000 (pounds) in the U.K. and $2000 in the U.S. for a representative basket of goods and determine the equilibrium exchange rate at ?1 = $2. But _________________ relates the exchange rate to changes over time in the purchasing power of the two currencies as measured against a prior base period thought to represent equilibrium in the exchange rate. a. base period b. equilibrium exchange rate c. relative PPP d. basket-pegging 101. According to the J-curve the initial impact of currency depreciation is to: a. worsen the trade balance for 6-12 months. b. drastically improve an external deficit. c. stop all importing and exporting. d. all of the above 102. In order to combat depreciation of the dollar Japanese countries reduce the yen price of their products to limit the rise in the dollar price. This practice is called the _______________. a. stagflation attempt b. pass-through effect c. absorption approach d. none of the above 103. Lost markets are not easily regained, and foreign exporters with a strong foothold are difficult to dislodge. These examples and the "inertia" of an overvalued currency are all described by: a. economic inertia. b. the appreciation effect. c. slow markets. d. hysteresis. 104. Factors which delay the effect that changing exchange rates has on trade balances are: a. the J-curve and hysteresis. b. incomplete pass-through. c. absorption, PPP and fluctuation. d. a and b. 105. According to the monetary approach, payment imbalances are based on money supply and money demand, and the demand for money as a stock depends on: a. partial balances. b. the price level and real output. c. the reserve settlement. d. a and c. 106. The money multiplier times reserves, made up of domestic credit and an international component, equals: a. demand for credit. b. the money supply. c. real output. d. domestic price level. 107. According to monetarists, any change in the domestic component of the money supply is offset by an equal and opposite change in: a. the fractional reserve policy. b. the exchange rate. c. the international reserve component through the balance of payments. d. all of the above 108. An external surplus occurs when _________________, while an external deficit occurs when _________________. a. interest rates change and exchange rates change b. floating exchange rates become fixed and fixed exchange rates become fixed c. money demand exceeds supply and money supply exceeds demand d. all of the above 109. External surpluses and deficits are: a. permanent. b. based on inaccurate GDP estimates. c. caused by poor fiscal policy. d. temporary. 110. Disequilibrium in the balance of payments implies disequilibrium in the money market, which means that money supply and demand: a. are not equivalent. b. exceed foreign prices and output. c. have risen too high too rapidly. d. b and c. 111. Because the monetary approach views a stable demand for money as a stock, balance of payment adjustment policies (like devaluation or tariffs) are considered unnecessary and: a. dangerous. b. always resulting in inflation. c. ineffective except in the short run. d. a and b. 112. Under a freely floating exchange rate, monetarists see exchange rates determined by ____________________, which, of course, depend(s) on the relative money stocks and real incomes of the countries. a. the ratio of the price levels of the countries b. the tariff rates in the two countries c. the interest rates in the two countries d. the external deficit or surplus of each country 113. The main advantage of a freely floating exchange rate is that exchange fluctuations maintain equilibrium in the balance of payments: a. which eliminates the need for international reserves. b. which stabilizes the world economy and raises international profits. c. and reduce unemployment and inflation. d. none of the above 114. Following its 1992 crisis, in an attempt to adopt an arrangement between fixed and floating exchange rates, the European Monetary System adopted fixed exchange rates but widened the spread within which exchange rates fluctuated. This approach is called the: a. wider band proposal. b. crawling rate card. c. the spreading spread. d. all of the above 115. The crawling peg system, practiced by Hungary and Poland, allows a country in disequilibrium to: a. move its peg from LDCs to industrialized nations over time. b. make pre-announced small changes in its exchange rate each month until equilibrium is reached. c. pay back annual deficits over a ten year period. d. a and c 116. A proposal calling on the IMF to establish objectives for major currencies' exchange rates is called a. an attack point. b. an aim level. c. a band destination. d. a target zone. 117. Some guidelines for countries joining an optimum currency area would include: a. high level coordination in fiscal and monetary policy. b. high levels of price-wage flexibility. c. high levels of financial integration and factor mobility between the countries. d. all of the above 118. The Maastricht Treaty of December 1999 outlined: a. free mobility of capital within 12 European countries. b. the replacement of 12 continental currencies with one common European currency. c. unified monetary, fiscal and exchange rate policies among participating Euro-Zone countries. d. all of the above 119. Despite the loss of sovereignty and transitional costs from joining the EU, members of the EU expect to gain long-run benefits including: a. decreased competition, higher exchange risks and decreased wages in wealthy countries matched with increased wages in poorer countries. b. reduced foreign trade transaction costs, price stability, elimination of exchange risk, and increased competition and capital formation. c. instantaneous price comparisons across countries and constantly decreasing prices. d. all of the above 120. If the equilibrium exchange rate is $1 = 8 yuans, but the Chinese government decides to overvalue the yuan and fix the dollar at 6 yuans, then the Chinese government would have to: a. impose exchange control. b. issue millions of government bonds. c. decrease the money supply by borrowing dollars from Japan. d. none of the above 121. Under exchange control, __________________ is restricted, because citizens cannot change their money to other currencies without a government license. a. dollar floating b. money laundering c. currency convertibility d. all of the above 122. Exchange control is more effective than tariffs or quotas in dealing with external deficits, because: a. exchange control includes all transactions (including services and capital movement) while tariffs and quotas deal only with commodity trade. b. tariffs and quotas are merely designed to creates deficits. c. exchange control is intended to maintain external balance, while tariffs and quotas are merely intended to protect domestic industries from international competition. d. a and c. 123. Despite the IMF permitting the use of exchange control to stop capital outflow, companies manage to make capital transfers using: a. importer overbilling and exporter underpaying. b. exporters underbilling and instructing importers to deposit the difference in exporters' foreign accounts. c. importers overpaying foreign exporters and instructing exporters to deposit the excess in importers' foreign accounts. d. b and c. 124. Another exchange control method designed to affect balance of trade and, similar to depreciation, would involve China encouraging certain exports and discouraging certain imports by circumventing the $1 = 8 yuan exchange rate. The Chinese government could accomplish this by placing those certain products at a lower exchange value for the yuan, like $1 = 12 yuans. This technique is called a: a. multiple exchange rate regime. b. inequitable rate system. c. loaded rate structure. d. export rate reduction empire. 125. If Russia and India were devoid of foreign currency holdings but still wanted to participate in trade, they could pay each other by exchanging commodities under what is called a: a. back-to barter-exchange mechanism. b. bilateral exchange-clearing agreement. c. trade without cash scheme. d. none of the above 126. Under a bilateral exchange-clearing agreement, how would Indian companies exporting to Russia get paid for their products? a. Indian exporters would draw payments in Russian rubles from a special account in Russia. b. Indian exporters would draw payments in Indian rupees from a special account in Russia that was paid into in Russian rubles by Russian importers. c. Indian exporters would draw payments in Indian rupees from a special account in India that was paid into in Indian rupees by Indian importers from Russia. d. Indian exporters would send their goods to Russian importers who would pay Russian exporters directly to export to Indian importers. The Indian importers would then pay the Indian exporters directly. 127. Under a clearing agreement, if bilateral trade is out of balance, Russia and India would agree in advance to a mutual line of credit, known as the _____________________, up to a certain level. a. equalizer b. oversight c. bilateral debt d. swing 128. Although trade under bilateral clearing agreements is directed by the need for bilateral balancing instead of by comparative advantage, this arrangement is actually superior to barter or: a. countertrade. b. tit-for-tat trade. c. eye-for-an-eye trade. d. none of the above 129. From 1950-1958, to help balance the over 400 bilateral clearing agreements in postwar Western Europe, a centralized network of clearing agreements and automatic credit (from surplus to deficit countries) was established as the: a. European Monetary Club (EMC). b. European Payments Union (EPU). c. Western Europe Trust (WET). d. Balance of Western Europe (BWE). 130. During the gold standard years, keeping currencies pegged at a fixed price in terms of gold was accomplished by deflating the money supply in times of external deficit and inflating the money supply in times of surplus. These reactions were called: a. the rules of the game. b. the gold inflate policy. c. the gold monetary swing. d. stabilizing theory. 131. Although the effects of WWI destroyed the underlying price-cost relationships on which the prewar exchange rates had been based, from 1870-1914 the gold standard was effective in adjusting external imbalances because: a. no countries wanted to trade any goods anyway. b. the lack of governmental controls over trade allowed the price and income mechanisms to exert their balancing pressures. c. silver was far too volatile. d. none of the above 132. When 44 nations met in Bretton Woods, New Hampshire after WWII to discuss economic problems, they chose a plan based on pegging exchange rates to the dollar, similar to one suggested by Harry White instead of John Maynard Keynes' British plan for an international clearing union. The 44 nations also agreed to set up two institutions: a. an early form of the World Bank to help with European reconstruction and the IMF, the central international financial institution. b. the Marshal Bank to handle all currency exchange and the Payments Union to fund European reconstruction. c. the Sterling Area for fluctuating currencies and the Woods Bank to assist countries with fixed exchange rates. d. none of the above 133. During Bretton Woods, why did the U.S. monetary authorities take a passive position in the currency market? a. The United States already felt uncomfortable about being the anchor and the international transactions, vehicle, intervention and reserve currency. Thus the U.S. central bank did not wish to provoke other countries in any way. b. The United States was afraid the dollar glut would force countries to look for ways to damage the U.S. economy. c. Since every country anchored its currency to the dollar, each country's central bank worked to maintain their exchange rate with the dollar. With no effort from the U.S. central bank, the dollar remained automatically pegged to all currencies. d. all of the above 134. During European Reconstruction (1945-1958) and during the existence of the European Payments Union in particular, Intra-European trade was conducted through a network of bilateral clearing agreements. This form of trade existed because the reconstruction meant the United States was the only source of capital and consumer goods, which resulted in a: a. trade war. b. dollar glut. c. dollar shortage. d. inflation explosion. 135. As the United States shifted from current account surpluses to years of deficits in the 1960s, European countries accumulated dollar reserves through their own surpluses. These changes led to many countries demanding dollar conversion to gold as they felt a saturation of dollar reserves, or a: a. dollar glut. b. dollar shortage. c. currency expansion. d. inflationary revaluation. 136. What happened after President Nixon attempted to devalue the dollar and encourage nations to revalue their currencies in relation to the dollar? a. The Smithsonian Agreement was created to raise the price of gold. b. Under the Smithsonian Agreement, the major currencies were revalued against the dollar. c. IMF accounts started being maintained in Special Drawing Rights or SDRs. d. all of the above 137. Although Europe and Japan had lost confidence in the dollar and the United States was concerned about its inability to change the exchange value of the dollar, the demise of Bretton Woods actually occurred due to: a. an onslaught of market forces which led to the creation of a system of generalized managed floats. b. sudden increased concern about the war in Vietnam. c. a Tokyo industrial accident which destroyed the Japanese economy and created worldwide fears of a recession. d. b and c 138. How were petrodollars recycled in the 1970s? a. Rich OPEC countries put their money into searching for oil in poor developing countries. b. OPEC countries lost all their money in poor investments and then had to borrow from all the countries they had overcharged. c. Wealthy OPEC nations placed their earnings in American and European banks that ended up loaning large sums of money to LDCs that could not afford to pay the increased cost of oil and oil-based products. d. b and c 139. The quadrupling of oil prices in the 1970s led to double-digit inflation and a simultaneous lengthy and deep recession, two of the main ingredients in the: a. switch from the dollar to the yen as the vehicle and transactions currency. b. Smithsonian Agreement. c. demise of the gold standard. d. stagflation of the mid-1970s. 140. Because it allowed each country to choose its own rate of inflation, the ________________ weathered the oil shock well. a. IMF and World Bank b. floating exchange rate system c. European Payments Union d. none of the above 141. Largely as a result of the Reagan tax cut early in the 1980s, what continued to grow through the 1980s? a. U.S. budgetary deficits (and real interest rates) remained quite high in the 1980s. b. The money supply continued to grow. c. The dollar shortage exploded in the 1980s. d. all of the above 142. The Plaza Accord was an agreement by finance ministers of the five main industrial nations to: a. increase the dollar's value world wide. b. drive down the dollar. c. limit the number of automobiles imported from Japan. d. maintain a certain percentage of imports coming from overseas manufacturers in order to assist LDCs. 143. In the 1980s the LDCs owed some $700 billion in external debt, accrued mainly as: a. risky investments in Korea and Taiwan. b. undervalued dollar reserves in the 1950s. c. loans made up of recycled petrodollars taken in the 1970s to pay quadrupled prices of oil. d. b and c 144. At the root of the Asian Financial crisis of 1997 were the incompatible features of: a. fixed exchange rates and independent monetary policy. b. specie-flow mechanism. c. free capital flows. d. a and c