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| 1 | In a fixed exchange rate regime, monetary policy is completely independent of exchange rate policy. |
 | A) | True |
| B) | False |
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| 2 | Neutrality of money implies that changes in nominal variables such as the money supply or nominal interest rates do not affect real variables such as growth. |
| A) | True |
| B) | False |
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| 3 | The Balassa–Samuelson effect can be stated as follows: Equilibrium real exchange rates of countries that enjoy lasting fast growth – because they are catching up from a lower level of development – follow an appreciating trend. |
| A) | True |
| B) | False |
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| 4 | Under a monetary union, the exchange rate is no longer established by domestic authorities. |
| A) | True |
| B) | False |
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| 5 | The impossible trinity principle helps to determine the optimal exchange rate regime to be adopted by a country. |
| A) | True |
| B) | False |
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| 6 | In the long run money is neutral. It has no lasting effect on __________ but does determine __________. |
| A) | the nominal economy, the real rate of exchange. |
| B) | the real economy, the rate of inflation and of appreciation/depreciation of the exchange rate. |
| C) | monetary policy, the rate of inflation and of appreciation/depreciation of the exchange rate. |
| D) | exchange rates, prices and wages. |
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| 7 | The impossible trinity principle states that the flowing three characteristics cannot be maintained simultaneously: |
| A) | a fixed exchange rate, monetary independence and full capital mobility. |
| B) | high productivity, free capital movement and monetary independence. |
| C) | free trade, free capital movement and low inflation. |
| D) | low interest rates, low unemployment and tight monetary policies. |
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| 8 | Under a fixed exchange rate, monetary policy is fully committed to ________. It is not available to ________. |
| A) | controlling inflationary pressures; pursue fiscal targets |
| B) | foreign exchange intervention; control interest rate targets |
| C) | upholding exchange rates; pursue domestic targets |
| D) | attain purchasing power parity; pursue domestic targets |
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| 9 | In the IS-LM framework, the LM schedule describes __________. |
| A) | the equilibrium in the money market. |
| B) | the equilibrium in the goods market. |
| C) | the demand for labour holding prices constant. |
| D) | trade-off between inflation and unemployment. |
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| 10 | In the IS-LM framework, the IS schedule describes ________. |
| A) | the equilibrium in the money market for a given real money supply |
| B) | the equilibrium in the goods market |
| C) | the supply of labour holding constant the degree of competition |
| D) | the Inflation-Savings trade-off |
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| 11 | Which of the following currencies are currently freely floating? |
| A) | US dollar |
| B) | Euro |
| C) | British pound |
| D) | All of the above |
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| 12 | The Purchasing Power Parity principle asserts that: |
| A) | the rate of appreciation of a currency follows the rate of foreign inflation. |
| B) | there is no visible link between volatile exchange rates and money growth and inflation. |
| C) | over the long run the nominal exchange rate, prices and wages all adjust to each other so that external equilibrium is restored. |
| D) | nominal exchange rates are volatile while prices are much more stable. |
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| 13 | The Purchasing Power Parity principle states that the nominal exchange rate should be constant in the long run. |
| A) | True |
| B) | False |
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| 14 | Crawling peg regimes are characterized by: |
| A) | the fact that authorities choose a wide range within which the exchange rate is allowed to move vis-à-vis its chosen anchor. |
| B) | the fact that authorities allow the central parity and the associated maximum and lower levels to slide regularly. |
| C) | the fact that authorities intervene on the foreign exchange market to ‘lean against the wind’, i.e. counter any significant market pressure in either direction. |
| D) | the fact that authorities fix a central parity vis-à-vis an anchor currency as well as a narrow band of fluctuation. |
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| 15 | Regional arrangements in exchange regimes are characterized by: |
| A) | two corner currency arrangements. |
| B) | inflationary monetary policy. |
| C) | free labour mobility. |
| D) | exchange rates that are pegged vis-à-vis each other and floating vis-à-vis all currencies outside of the region. |
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| 16 | When a country’s real exchange rate appreciates ____ |
| A) | the economy becomes more competitive |
| B) | the current account will deteriorate |
| C) | the country will export more |
| D) | the country will import less |
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| 17 | When a country’s real exchange rate depreciates ____, |
| A) | domestic goods become cheaper than foreign goods. |
| B) | domestic competitiveness increases. |
| C) | the country will export more and import less. |
| D) | all of the above are correct. |
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| 18 | If an investor observes that the nominal interest rate is higher in Country A than in Country B, he should invest in Country A if ____ |
| A) | he expects Country A’s exchange rate to remain constant over time. |
| B) | he expects Country A’s exchange rate to appreciate. |
| C) | he expects Country A’s exchange rate to depreciate. |
| D) | 1 and 2 are both true. |
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| 19 | After 2005, Greece experienced an increase in the risk premia on its public debt since it was seen as increasingly risky. |
| A) | True |
| B) | False |