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Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?


A) exchange rate stability
B) restrictions on international capital movements
C) tariffs and subsidies
D) restrictions on the migration of labor
E) global inflation

Correct Answer

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In L.Frank Baum's classic 1900 children's book,The Wonderful Wizard of Oz,the name "oz" is a reference to


A) an ounce (oz. ) of gold.
B) an ounce (oz. ) of silver.
C) an ounce (oz. ) of copper.
D) an ounce (oz. ) of gold or silver.
E) an ounce (oz. ) of wheat.

Correct Answer

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Due to macroeconomics interdependence between large countries,the effect of a permanent monetary policy expansion by Home is as follows: Home output


A) rises,Home's currency depreciates,and Foreign output may rise or fall.
B) falls,Home's currency depreciates,and Foreign output may rise or fall.
C) rises,Home's currency appreciates,and Foreign output may rise or fall.
D) rises,Home's currency depreciates,and Foreign output rises.
E) falls,Home's currency appreciates,and Foreign output may rise or fall.

Correct Answer

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Which of the following is NOT a result of a permanent fall in foreign demand on one country's exports under floating exchange rate?


A) The DD curve shifts to the left due to reduction of aggregate demand.
B) The AA curve shifts upwards due to the increased expected long-run exchange rate.
C) a reduction in output by a smaller degree compared to temporary fall in demand
D) depreciation in home country's currency
E) a raised level of unemployment

Correct Answer

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Economic theory and experience since 1973 indicate that,under floating exchange rates,a country's fiscal and monetary policies in the short-run and the long-run can


A) have both domestic and foreign economic impact.
B) have domestic or foreign economic impact,but not both.
C) have domestic but not foreign economic impact.
D) have foreign but not domestic economic impact.
E) have neither domestic nor foreign economic impact.

Correct Answer

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Maintaining a fixed exchange rate over the long run is today


A) virtually impossible.
B) more vulnerable to speculative attacks than in the past.
C) preferable.
D) possible only in special cases such as maintaining strict capital controls.
E) aided by technology which allows instant movement of money between financial markets in different countries.

Correct Answer

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The XX schedule shows how much


A) fiscal expansion is needed to hold the current account surplus at X as the currency is devalued by a given amount.
B) monetary expansion is needed to hold the current account surplus at X as the currency is devalued by a given amount.
C) fiscal expansion is needed to hold the current account surplus at X as the currency is evaluated by a given amount.
D) fiscal and monetary expansions are needed to hold the current account surplus at X as the currency is devalued by a given amount.
E) foreign funding is needed to hold the current account surplus at X as the currency is devalued by a given amount.

Correct Answer

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The view of mercantilists can be summarized as follows


A) to sell less to strangers yearly than we consume of theirs in value.
B) to sell more to strangers yearly than we consume of theirs in value.
C) to consume more of theirs in value than we sell to strangers.
D) to consume the same amount as theirs in value as we sell to strangers.
E) to sell gold and silver to strangers in exchange for services.

Correct Answer

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The costs of inflation have been most apparent in the post-war period in countries like


A) Argentina.
B) Belgium.
C) the United States.
D) Canada.
E) Japan.

Correct Answer

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A policy of "beggar-thy-neighbor" is a policy that


A) often benefits the home country in the long run.
B) often benefits the foreign country in the long run.
C) often benefits foreign country in the short run.
D) does not often benefits any country in the long run.
E) benefits the home country's neighbors in the long run.

Correct Answer

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By internal balance,most economists mean


A) full employment.
B) price stability.
C) full employment and price stability.
D) full employment and moderate increase in prices.
E) full employment and high disposable income.

Correct Answer

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L.Frank Baum's classic 1900 children's book,The Wonderful Wizard of Oz,is


A) an allegorical rendition of the U.S.political struggle over silver.
B) an allegorical rendition of the U.S.political struggle over copper.
C) an allegorical rendition of the U.S.political struggle over both silver and gold.
D) an allegorical rendition of the U.S.political struggle over indebted farmers.
E) an allegorical rendition of the U.S.political struggle over gold.

Correct Answer

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Assume that the government has a target value,X,for the current account surplus. (a)What is the goal of external balance? (b)Assume that we are dealing with only the short run,what are the values of P and Pāˆ—? (c)Given fixed P and P Assume that the government has a target value,X,for the current account surplus. (a)What is the goal of external balance? (b)Assume that we are dealing with only the short run,what are the values of P and Pāˆ—? (c)Given fixed P and P ,what would happen if E rises? (d)Given P and P ,what would happen if T decreases,i.e. ,an expansionary fiscal policy? (e)Given P and P ,what would happen if G increases,i.e. ,an expansionary fiscal policy? (f)Given all of the above,what is the relation between the exchange rate,E,and fiscal ease,i.e. ,an increase in G or a reduction in T? (g)Assume that the economy is in external balance.What will happen if the government maintains its current account at X,but devaluates the domestic currency? (h)Assume that the economy is at external balance.What will happen if the government raises E? (i)Assume that the economy is at external balance.What will happen if the government lowers E? ,what would happen if E rises? (d)Given P and P Assume that the government has a target value,X,for the current account surplus. (a)What is the goal of external balance? (b)Assume that we are dealing with only the short run,what are the values of P and Pāˆ—? (c)Given fixed P and P ,what would happen if E rises? (d)Given P and P ,what would happen if T decreases,i.e. ,an expansionary fiscal policy? (e)Given P and P ,what would happen if G increases,i.e. ,an expansionary fiscal policy? (f)Given all of the above,what is the relation between the exchange rate,E,and fiscal ease,i.e. ,an increase in G or a reduction in T? (g)Assume that the economy is in external balance.What will happen if the government maintains its current account at X,but devaluates the domestic currency? (h)Assume that the economy is at external balance.What will happen if the government raises E? (i)Assume that the economy is at external balance.What will happen if the government lowers E? ,what would happen if T decreases,i.e. ,an expansionary fiscal policy? (e)Given P and P Assume that the government has a target value,X,for the current account surplus. (a)What is the goal of external balance? (b)Assume that we are dealing with only the short run,what are the values of P and Pāˆ—? (c)Given fixed P and P ,what would happen if E rises? (d)Given P and P ,what would happen if T decreases,i.e. ,an expansionary fiscal policy? (e)Given P and P ,what would happen if G increases,i.e. ,an expansionary fiscal policy? (f)Given all of the above,what is the relation between the exchange rate,E,and fiscal ease,i.e. ,an increase in G or a reduction in T? (g)Assume that the economy is in external balance.What will happen if the government maintains its current account at X,but devaluates the domestic currency? (h)Assume that the economy is at external balance.What will happen if the government raises E? (i)Assume that the economy is at external balance.What will happen if the government lowers E? ,what would happen if G increases,i.e. ,an expansionary fiscal policy? (f)Given all of the above,what is the relation between the exchange rate,E,and fiscal ease,i.e. ,an increase in G or a reduction in T? (g)Assume that the economy is in external balance.What will happen if the government maintains its current account at X,but devaluates the domestic currency? (h)Assume that the economy is at external balance.What will happen if the government raises E? (i)Assume that the economy is at external balance.What will happen if the government lowers E?

Correct Answer

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(a)The goal of external balance requires...

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The mechanism behind the inflation insulation provided by a floating exchange rate is


A) Purchasing Power Parity.
B) a fixed AA curve.
C) market speculation.
D) tight monetary policy.
E) symmetry.

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What has been learned since 1973 with regards to the experience with floating exchange rate regime?

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(1)Monetary policy autonomy: Yes,however...

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Which one of the following statements is the MOST accurate? By the year 1932,the United States


A) and Canada alone held more than 70 percent of the world's monetary gold.
B) and Germany alone held more than 70 percent of the world's monetary gold.
C) and Britain alone held more than 70 percent of the world's monetary gold.
D) Britain,and France alone held more than 70 percent of the world's monetary gold.
E) and France alone held more than 70 percent of the world's monetary gold.

Correct Answer

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The costs of inflation have been most apparent in the post-war period in countries like


A) Brazil.
B) Belgium.
C) the United States.
D) Canada.
E) Japan.

Correct Answer

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The effects of an increase in real money demand on an economy


A) is an argument against flexible exchange rates.
B) is an argument in favor of flexible exchange rates.
C) shows the difficulties in determining which exchange rate regime is better.
D) is an argument in favor of flexible exchange rates only in the short run.
E) is an argument against flexible exchange rates only in the short run.

Correct Answer

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Which of the following is one component of the "trilemma" that is faced by policy makers in choosing monetary arrangements?


A) freedom of international capital movements
B) exchange rate instability
C) tariffs and subsidies
D) restrictions on the migration of labor
E) global inflation

Correct Answer

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A sudden increase in the U.S.price level


A) makes creditors in dollars better off.
B) makes creditors in dollars worse off.
C) do not affect creditors in dollars.
D) makes creditors in DM worse off.
E) makes lenders worse off.

Correct Answer

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