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| 1 | |
With fixed exchange rates and no private capital flows, to correct a balance of payments deficit , the central bank will _______ and ___________. |
| | A) | buy foreign exchange, sell domestic currency |
| | B) | sell foreign exchange, buy domestic currency |
| | C) | buy foreign exchange, buy domestic currency |
| | D) | sell foreign exchange, sell domestic currency |
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| 2 | |
With a _____ exchange rate, and perfect capital mobility, the domestic interest rate must _____ foreign interest rates to prevent massive capital flows and allow equilibrium in the forex market. |
| | A) | fixed, match |
| | B) | fixed, be greater than |
| | C) | fixed, be less than |
| | D) | floating, match |
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| 3 | |
In the short run, ________ is a powerful tool under fixed exchange rates. |
| | A) | monetary policy |
| | B) | fiscal policy |
| | C) | incomes policy |
| | D) | supply-side policy |
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| 4 | |
A devaluation with sluggish price adjustment raises ____________ and aggregate ______. |
| | A) | prices, supply |
| | B) | competitiveness, supply |
| | C) | competitiveness, demand |
| | D) | prices, demand |
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| 5 | |
In the long run, devaluation is unlikely to have much effect |
| | A) | True |
| | B) | False |
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| 6 | |
Under floating exchange rates, monetary policy is a _____________________. |
| | A) | powerful short term tool |
| | B) | powerful long term tool |
| | C) | neffective short term tool |
| | D) | ineffective long term tool |
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| 7 | |
Fiscal policy is a _______ tool under floating exchange rates. |
| | A) | stronger |
| | B) | weaker |
| | C) | short term |
| | D) | long term |
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| 8 | |
Under _________ exchange rates, fiscal expansion induces a boom and higher interest rates causing an exchange rate appreciation that crowds out some net exports, reinforcing domestic crowding out of consumption and investment. |
| | A) | fixed |
| | B) | dirty floating |
| | C) | floating |
| | D) | managed |
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| 9 | |
In a _______ economy, ______ interest rates partially crowd out private expenditure by reducing consumption and investment demand. |
| | A) | closed, lower |
| | B) | closed, higher |
| | C) | open, lower |
| | D) | open, higher |
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| 10 | |
With fixed exchange rates and no private currency flows, when the central bank buys domestic currency the domestic money supply is _________. |
| | A) | increased |
| | B) | unaffected |
| | C) | reduced |
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| 11 | |
Unsterilized intervention in the forex market means that a balance of payments surplus results in a higher domestic money supply. |
| | A) | True |
| | B) | False |
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| 12 | |
When the central bank prints cash and buys domestic bonds to offset the contraction in domestic money supply resulting from an external payments deficit, this is an example of ________. |
| | A) | devaluation |
| | B) | revaluation |
| | C) | deflation |
| | D) | sterilization |
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| 13 | |
In the absence of international capital controls, central banks set ________ to provide the correct incentive for speculators. |
| | A) | money supply targets |
| | B) | incomes policy |
| | C) | interest rates |
| | D) | inflation targets |
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| 14 | |
Sterilized intervention works when there is perfect capital mobility because offsetting capital flows are immediately induced |
| | A) | True |
| | B) | False |
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| 15 | |
A fixed exchange rate, plus perfect capital mobility ________ the scope for monetary policy. |
| | A) | enhances |
| | B) | undermines |
| | C) | encourages |
| | D) | facilitates |
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| 16 | |
The competitive advantage from a devaluation is likely to be offset by __________ and ____________. |
| | A) | higher import prices, higher wage increases |
| | B) | lower export prices, lower import volumes |
| | C) | higher import prices, lower export prices |
| | D) | lower wage increases, lower import volumes |
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| 17 | |
Under floating exchange rates, monetary policy is a powerful tool |
| | A) | True |
| | B) | False |
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| 18 | |
Under floating exchange rates, expectations of higher interest rates are likely to cause an ___________ of the exchange rate. |
| | A) | depreciation |
| | B) | appreciation |
| | C) | fall |
| | D) | devaluation |
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| 19 | |
Fiscal policy is weak under floating exchange rates as fiscal expansion _____________. |
| | A) | crowds out imports |
| | B) | crowds out public consumption |
| | C) | crowds out exports |
| | D) | reduces the budget deficit |
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| 20 | |
The main factor affecting the long run path of the UK nominal exchange rate is the growth of world trade. |
| | A) | True |
| | B) | False |
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