Exam 12: International Financial Crises

A) an increase in the money supply.
B) an expenditure reduction and expenditure switching policy.
C) an expansionary fiscal policy accompanied by decreases in taxes,increases in expenditures,or both.
D) an exchange rate switching policy from a fixed to a flexible exchange rate system.
E) None of the above.

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A) how high an interest rate the lender of last resort should charge when it makes loans.
B) the length of the payback period.
C) the size of the loans.
D) the moral hazard problem associated with a lender of last resort.
E) if the lender of last resort (i.e. ,the IMF) should consult and collaborate with other international institutions such as the United Nations and the WTO.

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A) Everyone that deposits money in the bank loses all or a portion of their money,unless the country has a functioning deposit insurance system.
B) The loss of savings (or the feared loss of savings) causes households to cut back on consumption,which spreads the recessionary effect wider through the country.
C) Unaffected banks may stop making loans as they take a cautious approach,slowing or stopping new investment.
D) Layoffs occur and the economy falls deeper into a downward spiraling inflation.
E) Other banks make too many loans to make up for the loans not made by the failed bank,kicking off a cycle of stimulation and inflation.

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A) Maintaining credible and sustainable fiscal policies
B) Regulation and supervision of the financial system
C) Disclosure of timely information to lenders,investors,and depositors about key economic variables such as the central bank's holding of international reserves
D) Immediately bailing out financial intermediaries and standing ready to bail out others in case a financial crisis occurs
E) Maintaining credible and sustainable monetary policies

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A) bank failings and disintermediation.
B) decreases in investment.
C) a recession.
D) a sure competitive advantage accompanied by a comparative advantage.
E) depreciation or devaluation of a currency.

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A) a revaluation of the currency.
B) a rapid and uncontrolled depreciation of the currency.
C) a decrease in the dollar value of the country's international debt.
D) a sure political collapse of the ruling government.
E) All of the above.

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A) requiring bank owners to invest into and have some capital ownership in the banks they own.
B) supervision of banks by an oversight board.
C) information disclosure designed to encourage market discipline.
D) denying access to foreign capital by a country that defaults on its international loans.
E) None of the above.

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A) a greater change in P (domestic price) compared to a change in $P^{*}$ 1 (foreign price) necessitates a rise in the nominal rate, R_n ,to keep the real rate unchanged.
B) a pegged exchange rate system requires tight control of the money supply.
C) there is a one-to-one correspondence between the real and nominal exchange rates.
D) an expansionary monetary policy raises the real exchange rate.
E) the real exchange rate would be the same as the nominal exchange rate only if the difference between domestic and foreign inflation rates is zero.

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A) An overvalued exchange rate
B) An inflow of large foreign portfolio capital
C) The inability of the IMF,the world bank,and the NAFTA member countries (i.e. ,the United States and Canada) to predict the looming financial crisis
D) Shifts by the world capital markets toward more conservative and risk-averse investments because of interest and exchange rate movements around the world
E) High domestic investments with insufficient domestic savings

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