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1 | |
If British residents want more French francs to purchase more French wine, other things equal, then the equilibrium value of the pound against the French franc will ___________ |
| | A) | rise |
| | B) | fall |
| | C) | not change |
| | D) | fluctuate |
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2 | |
When the $/£ exchange rate rises the pound ___________, and when the $/£ rate falls the pound __________ |
| | A) | depreciates, appreciates |
| | B) | revalues, devalues |
| | C) | appreciates, depreciates |
| | D) | becomes more expensive, becomes cheaper |
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3 | |
When a government follows a fixed exchange rate regime it allows the exchange rate to be determined by market forces |
| | A) | TRUE |
| | B) | FALSE |
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4 | |
In a fixed exchange rate regime, the central bank will intervene by _____ pounds to ________ the exchange rate |
| | A) | selling, increase |
| | B) | buying, reduce |
| | C) | selling, reduce |
| | D) | buying, increase |
| | E) | a and b |
| | F) | c and d |
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5 | |
A current account deficit means that a country may ___________ |
| | A) | reduce its stock of foreign assets |
| | B) | increase its stock of foreign assets |
| | C) | increase its savings |
| | D) | increase its foreign currency reserves |
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6 | |
Under floating exchange rates, a current account deficit must be exactly matched by a capital account surplus |
| | A) | TRUE |
| | B) | FALSE |
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7 | |
Starting from a position of internal and external balance, a reduction in aggregate demand will cause a current account _____________ |
| | A) | deficit |
| | B) | surplus |
| | C) | revaluation |
| | D) | devaluation |
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8 | |
A rise in the real exchange rate will ____________ the competitiveness of the domestic economy |
| | A) | increase |
| | B) | reduce |
| | C) | do nothing to |
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9 | |
Within the circular flow of income, an increase in domestic income will tend to increase |
| | A) | exports |
| | B) | taxes |
| | C) | inventories |
| | D) | imports |
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10 | |
Perfect international capital mobility suggests that international funds will be responsive to _____________ differentials |
| | A) | current account |
| | B) | interest rate |
| | C) | tax |
| | D) | price |
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11 | |
When capital mobility is perfect, interest rate differentials will tend to be offset by ________ |
| | A) | price differences |
| | B) | balance of payments differences |
| | C) | current account differences |
| | D) | expected exchange rate changes |
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12 | |
The current account will differ from trade balance because of interest flows from foreign assets and debts |
| | A) | TRUE |
| | B) | FALSE |
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13 | |
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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14 | |
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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15 | |
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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16 | |
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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17 | |
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) | higher wage increases, lower import volumes |
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18 | |
Under floating exchange rates, monetary policy is a powerful tool |
| | A) | TRUE |
| | B) | FALSE |
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19 | |
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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20 | |
In the short run, the level of floating exchange rates is determined mainly by _________ |
| | A) | interest rates |
| | B) | competitiveness |
| | C) | trade |
| | D) | speculation |
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21 | |
If one country, with floating exchange rates, has higher inflation than its competitors, we would expect its exchange rate to __________ |
| | A) | appreciate |
| | B) | depreciate |
| | C) | revalue |
| | D) | be in short supply |
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22 | |
Floating exchange rates are _________ in the short run |
| | A) | stable |
| | B) | predictable |
| | C) | volatile |
| | D) | depreciating |
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23 | |
Fixed exchange rates permit a country to have permanently higher inflation |
| | A) | TRUE |
| | B) | FALSE |
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24 | |
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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25 | |
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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26 | |
The main features of the European Monetary system are |
| | A) | the ECU |
| | B) | currency swap agreement between member countries |
| | C) | the exchange rate mechanism |
| | D) | all of the above |
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27 | |
In the ERM, each country fixed ____________ against each other ERM participant. Collectively the group _________ against the rest of the world |
| | A) | a nominal exchange rate, floated |
| | B) | a real exchange rate, pegged |
| | C) | a purchasing power parity, pegged |
| | D) | a real exchange rate, floated |
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28 | |
International policy co-ordination allows policy-makers to commit to policies they would otherwise avoid |
| | A) | TRUE |
| | B) | FALSE |
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29 | |
The Single European Act committed ____________ governments to a __________ in 1992 |
| | A) | European union, single market |
| | B) | Western European, single currency area |
| | C) | European Union, single currency area |
| | D) | Western European, single market |
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30 | |
All of the following are benefits of the Single Market except |
| | A) | it allows countries to exploit their comparative advantage , more fully |
| | B) | firms could more readily exploit economies of scale |
| | C) | it intensified competition |
| | D) | it is easier to book holidays in member countries |
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31 | |
The Maastricht criteria for joining EMU is that a country must have a high growth rate |
| | A) | TRUE |
| | B) | FALSE |
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32 | |
A monetary union means __________, ____________ and ____________ |
| | A) | permanently fixed capital movements, floating exchange rates, a fixed structure of interest rates |
| | B) | permanently fixed exchange rates, free capital movements, a single interest rate |
| | C) | a common currency, a single central bank, common monetary policy |
| | D) | a common currency, floating exchange rates, common monetary policy |
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33 | |
The Maastricht criteria for entry to the EMU are that applicants should have |
| | A) | low inflation |
| | B) | low interest rates |
| | C) | stable nominal exchange rates |
| | D) | budget deficits and government debt under control |
| | E) | all of the above |
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34 | |
The UK is a member of the EMU |
| | A) | TRUE |
| | B) | FALSE |
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35 | |
In the EMU a country's competitiveness can change because of __________ |
| | A) | interest rate adjustment |
| | B) | central bank intervention in the forex |
| | C) | domestic wage and price adjustment |
| | D) | devaluation |
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2003 A McGraw-Hill Online Learning Centre