Question 1

Suppose that your country officially defines gold as ten times more valuable than silver (i.e.,the central bank stands ready to redeem the currency in gold and silver and the official price of gold is ten times the official price of silver) .If the market price of gold is only eight times as much as silver,

Accepted Answer

A)  the central bank could go broke if enough arbitrageurs attempt to take advantage of the pricing disparity.
B)  the central bank will make money since they are overpricing gold.
C)  the central bank could go broke if enough arbitrageurs attempt to take advantage of the pricing disparity,but will more likely make money since they are overpricing gold
D)  none of the options.

Question 2

Gold was officially abandoned as an international reserve asset

Accepted Answer

A)  in the January 1976 Jamaica Agreement.
B)  in the 1971 Smithsonian Agreement.
C)  in the 1944 Bretton Woods Agreement.
D)  none of the options

Question 3

Under a purely flexible exchange rate system

Accepted Answer

A)  supply and demand set the exchange rates.
B)  governments can set the exchange rate by buying or selling reserves.
C)  governments can set exchange rates with fiscal policy.
D)  governments can set the exchange rate by buying or selling reserves and with fiscal policy.

Question 4

Assume that a country is on the gold standard.In order to support unrestricted convertibility into gold,banknotes need to be backed by a gold reserve of some minimum stated ratio.In addition,

Accepted Answer

A)  the domestic money stock should rise and fall as gold flows in and out of the country.
B)  the central bank can control the money supply by buying or selling the foreign currencies.
C)  the domestic money stock should rise and fall as gold flows in and out of the country and the central bank can control the money supply by buying or selling the foreign currencies.
D)  none of the options

Question 5

The Triffin paradox

Accepted Answer

A)  was first proposed by Professor Robert Triffin.
B)  warned that the gold-exchange system of the Bretton Woods agreement was programmed to collapse in the long run.
C)  was indeed responsible for the eventual collapse of the dollar-based gold-exchange system in the early 1970s.
D)  all of the options

Question 6

According to the theory of optimum currency areas,

Accepted Answer

A)  the relevant criterion for identifying and designing a common currency zone is the degree of factor (i.e.,capital and labor) mobility within the zone.
B)  exchange rates should reflect the degree to which workers are willing to move to get a better job.
C)  exchange rates are determined by portfolio managers seeking the highest return.
D)  none of the options

Question 7

To avoid currency crisis in the face of fully integrated capital markets,a country can have a

Accepted Answer

A)  floating exchange rate.
B)  fixed exchange rate.
C)  fixed exchange rate that adjusts.
D)  floating and fixed exchange rates can both help to avoid currency crises.

Question 8

The advent of the euro marks the first time that sovereign countries have voluntarily given up their

Accepted Answer

A)  national borders to foster economic integration.
B)  monetary independence to foster economic integration.
C)  fiscal policy independence to foster economic integration.
D)  national debt to foster economic integration.

Question 9

Advantages of a fixed exchange rate include

Accepted Answer

A)  reduction in exchange rate risk for businesses.
B)  reduction in transactions costs.
C)  reduction in trading frictions.
D)  all of the options

Question 10

Once the changeover to the euro was completed by July 1,2002,the legal-tender status of national currencies in the euro zone

Accepted Answer

A)  was canceled,leaving the euro as the sole legal tender in the euro zone countries.
B)  was affirmed at the fixed exchange rate.
C)  was tied to gold.
D)  none of the options

Question 11

The Exchange Rate Mechanism (ERM) is

Accepted Answer

A)  the procedure by which ERM member countries collectively manage their exchange rates.
B)  based on a "parity-grid" system,which is a system of par values among ERM countries.
C)  the procedure by which ERM member countries collectively manage their exchange rates and is based on a "parity-grid" system,which is a system of par values among ERM countries.
D)  none of the options

Question 12

A central bank can fix an exchange rate

Accepted Answer

A)  in perpetuity.
B)  only for as long as the market believes that it has the political will to do so.
C)  only for as long as it has reserves of gold.
D)  only for as long as it has independence of monetary policy.

Question 13

An "international" gold standard can be said to exist when

Accepted Answer

A)  gold alone is assured of unrestricted coinage.
B)  there is two-way convertibility between gold and national currencies at stable ratios.
C)  gold may be freely exported or imported.
D)  all of the options

Question 14

To pave the way for the European Monetary Union,the member countries of the European Monetary System agreed to achieve a convergence of their economies.Which of the following is not a condition of convergence:

Accepted Answer

A)  keep the ratio of government budget deficits to GDP below 3 percent.
B)  keep gross public debts below 60 percent of GDP.
C)  achieve a high degree of price stability.
D)  maintain its currency at a fixed exchange rate to the ERM.

Question 15

The price-specie-flow mechanism will work only if governments are willing to play by the rules of the game by letting the money stock rise and fall as gold flows in and out.Once the government demonetizes (neutralizes) gold,the mechanism will break down.In addition,the effectiveness of the mechanism depends on

Accepted Answer

A)  the income elasticity of the demand for imports.
B)  the price elasticity of the demand for imports.
C)  the price elasticity of the supply of imports.
D)  the income elasticity of the supply of imports.

Question 16

Advantages of a flexible exchange rate include which of the following?

Accepted Answer

A)  National policy autonomy.
B)  Easier external adjustments.
C)  The government can use monetary and fiscal policies to pursue whatever economic goals it chooses.
D)  all of the options

Question 17

In the United States,bimetallism was adopted by the Coinage Act of 1792 and remained a legal standard until 1873,

Accepted Answer

A)  when Congress dropped the silver dollar from the list of coins to be minted.
B)  when Congress dropped the twenty-dollar gold piece from the list of coins to be minted.
C)  when gold from the California gold rush drove silver out of circulation.
D)  when gold from the California gold rush drove gold out of circulation.

Question 18

Under the gold standard,international imbalances of payment will be corrected automatically under the

Accepted Answer

A)  Gresham Exchange Rate regime.
B)  European Monetary System.
C)  Price-specie-flow mechanism.
D)  Bretton Woods Accord.

Question 19

Following the demise of the Bretton Woods system,the IMF

Accepted Answer

A)  created a new role for itself,providing loans to countries facing balance-of-payments and exchange rate difficulties.
B)  ceased to exists,since the era of fixed exchange rates had ended.
C)  became the sole agent responsible for maintaining fixed exchange rates.
D)  became the central bank of the United Nations.

Question 20

The Bretton Woods agreement resulted in the creation of

Accepted Answer

A)  the bancor as an international reserve asset.
B)  the World Bank.
C)  the Exim bank.
D)  the Federal Reserve Bank.

Exam 1: International Monetary System

Assume that a country is on the gold standard.In order to support unrestricted convertibility into gold,banknotes need to be backed by a gold reserve of some minimum stated ratio.In addition,

Correct Answer
verified

The Exchange Rate Mechanism (ERM) is

Correct Answer
verified

Advantages of a fixed exchange rate include

Correct Answer
verified

Once the changeover to the euro was completed by July 1,2002,the legal-tender status of national currencies in the euro zone

Correct Answer
verified

Advantages of a flexible exchange rate include which of the following?

Correct Answer
verified

Following the demise of the Bretton Woods system,the IMF

Correct Answer
verified

Gold was officially abandoned as an international reserve asset

Correct Answer
verified

A central bank can fix an exchange rate

Correct Answer
verified

In the United States,bimetallism was adopted by the Coinage Act of 1792 and remained a legal standard until 1873,

Correct Answer
verified

The Triffin paradox

Correct Answer
verified

According to the theory of optimum currency areas,

Correct Answer
verified

Under a purely flexible exchange rate system

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The advent of the euro marks the first time that sovereign countries have voluntarily given up their

Correct Answer
verified

To pave the way for the European Monetary Union,the member countries of the European Monetary System agreed to achieve a convergence of their economies.Which of the following is not a condition of convergence:

Correct Answer
verified

Under the gold standard,international imbalances of payment will be corrected automatically under the

Correct Answer
verified

An "international" gold standard can be said to exist when

Correct Answer
verified

The Bretton Woods agreement resulted in the creation of

Correct Answer
verified

To avoid currency crisis in the face of fully integrated capital markets,a country can have a

Correct Answer
verified

Exam 1: International Monetary System

Assume that a country is on the gold standard.In order to support unrestricted convertibility into gold,banknotes need to be backed by a gold reserve of some minimum stated ratio.In addition,

Correct AnswerverifiedShow Answer

The Exchange Rate Mechanism (ERM) is

Correct AnswerverifiedShow Answer

Advantages of a fixed exchange rate include

Correct AnswerverifiedShow Answer

Once the changeover to the euro was completed by July 1,2002,the legal-tender status of national currencies in the euro zone

Correct AnswerverifiedShow Answer

Advantages of a flexible exchange rate include which of the following?

Correct AnswerverifiedShow Answer

Following the demise of the Bretton Woods system,the IMF

Correct AnswerverifiedShow Answer

Gold was officially abandoned as an international reserve asset

Correct AnswerverifiedShow Answer

A central bank can fix an exchange rate

Correct AnswerverifiedShow Answer

In the United States,bimetallism was adopted by the Coinage Act of 1792 and remained a legal standard until 1873,

Correct AnswerverifiedShow Answer

The Triffin paradox

Correct AnswerverifiedShow Answer

According to the theory of optimum currency areas,

Correct AnswerverifiedShow Answer

Under a purely flexible exchange rate system

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The advent of the euro marks the first time that sovereign countries have voluntarily given up their

Correct AnswerverifiedShow Answer

To pave the way for the European Monetary Union,the member countries of the European Monetary System agreed to achieve a convergence of their economies.Which of the following is not a condition of convergence:

Correct AnswerverifiedShow Answer

Under the gold standard,international imbalances of payment will be corrected automatically under the

Correct AnswerverifiedShow Answer

An "international" gold standard can be said to exist when

Correct AnswerverifiedShow Answer

The Bretton Woods agreement resulted in the creation of

Correct AnswerverifiedShow Answer

To avoid currency crisis in the face of fully integrated capital markets,a country can have a

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified