1. Since March 1973, currency exchange rates have become less volatile and more
ID: 447867 • Letter: 1
Question
1. Since March 1973, currency exchange rates have become less volatile and more predictable than they were between 1945 and 1973. Select one: True or False
2. Under a floating exchange rate system, a country’s ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.
Select one: True or False
3. The objective of establishing the World Bank was to:
Select one:
a. revive the gold standard.
b. promote general economic development.
c. control and manage the International Monetary Fund.
d. promote a floating exchange rate system.
e. approve large currency devaluations.
4. Many of the world’s developing nations peg their currencies, primarily to the _____.
Select one:
a. U.S. dollar
b. Saudi riyal
c. Japanese yen
d. Chinese yuan
e. German deutsche marks
5. The International Monetary Fund been criticized for:
Select one:
a. its lack of “one-size-fits-all” approach to macroeconomic policy.
b. encouraging moral hazard among banks.
c. its lack of power and authority.
d. using external experts to gain knowledge about a country.
e. keeping its operations open to outside scrutiny.
6. The major problem with the gold standard was that no multinational institution could stop countries from engaging in competitive devaluations.
Select one:
True
False
7. Which of the following is an argument for a fixed exchange rate system?
Select one:
a. Governments can contract their money supply without worrying about the need to maintain parity.
b. Trade balance adjustments do not require the intervention of the International Monetary Fund.
c. It ensures that governments do not expand the monetary supply too rapidly, thus causing high price inflation.
d. Speculations in exchange rates boost exports and reduce imports.
e. Each country should be allowed to choose its own inflation rate.
8. Some economists argue that higher inflation rates might be good if the consequence is greater growth in aggregate demand.
Select one:
True
False
9. Under the U.S. macroeconomic policy package of 1965-1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by:
Select one:
a. the sale of gold reserves.
b. borrowing from the International Monetary Fund.
c. an increase in the money supply.
d. an increase in taxes.
e. selling bonds in the international capital market.
10. Which of the following statements is true about financial crises?
Select one:
a. The elements of currency, banking, and debt crises do not present themselves simultaneously.
b. A currency crisis forces authorities to hold large volumes of international currency reserves.
c. A foreign debt crisis occurs when a country's foreign debt obligations in private-sector government debt cannot be serviced.
d. A banking crisis occurs when individuals and companies increase their deposits due to increasing interest rates.
e. The International Monetary Fund does not grant loans to countries that face the risks of financial crises.
11. Which of the following was a reason that led to the collapse of the gold standard in 1939?
Select one:
a. Difficulty and complexity in using the gold standard to determine the exchange rate
b. Agreement by governments to convert paper currency into gold on demand at a fixed rate
c. A cycle of competitive currency devaluations by various countries
d. Expansion in the volume of international trade in the wake of the Industrial Revolution
e. The inability of the gold standard to act as a mechanism for achieving balance-of-trade equilibrium by all countries
12. Which of the following statements is true about the various exchange rate systems?
Select one:
a. In a fixed exchange rate system, the value of a currency is adjusted according to the day to day market forces.
b. In a clean float, the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency.
c. After the collapse of the Bretton Woods system of floating exchange rates in 1973, the world has operated with a fixed exchange rate system.
d. According to the Bretton Woods system, the value of most currencies in terms of U.S. dollars was allowed to change only under a specific set of circumstances.
e. In dirty float, the exchange rate between a currency and other currencies is relatively fixed against a reference currency exchange rate.
13. Under a pegged exchange rate regime, a country will peg the value of its currency to that of a major currency, so that if the reference currency rises in value, its own currency rises too.
Select one: True or False
14. An advantage of a pegged exchange rate system is that it imposes monetary discipline on a country and leads to low _____.
Select one:
a. monetary discipline
b. price inflation
c. exchange rate predictability
d. trade surplus
e. exports
15. An advantage of a pegged exchange rate system is that it imposes monetary discipline on a country and leads to low _____.
Select one:
a. monetary discipline
b. price inflation
c. exchange rate predictability
d. trade surplus
e. exports
16. Which of the following was the weakness of the Bretton Woods system?
Select one:
a. It could be wrecked by heavy borrowings from the World Bank and the International Monetary Fund.
b. It could not work if the U.S. dollar was under speculative attack.
c. The inflexibility of the system resulted in high unemployment.
d. It forced fiscal and monetary discipline on participating nations.
e. It allowed the countries to engage in competitive currency devaluations.
17. When the Bretton Woods participants established the World Bank, the need to lend money to third world nations was foremost in their minds.
Select one: True or False
18. Which of the following was abandoned as per the Jamaica agreement of 1976?
Select one:
a. Floating exchange rate system
b. U.S. dollar as the reference currency
c. Gold as a reserve asset
d. Membership to the International Monetary Fund
e. Granting International Monetary Fund loans to less developed countries
19. Under the Plaza Accord of 1985, the Group of Five major industrial countries concluded that it would be desirable if:
Select one:
a. the countries returned to a system of fixed exchange rates.
b. the participating members reverted to the gold standard.
c. the United States adopted protectionism to improve its trade balance.
d. most major currencies appreciated vis-à-vis the U.S. dollar.
e. governments did not regulate the buying and selling of currency.
20.The activities of the International Monetary Fund have declined after the collapse of the Bretton Woods system in 1973.
Select one:
Truen or False
Explanation / Answer
1. Since March 1973, currency exchange rates have become less volatile and more predictable than they were between 1945 and 1973.
False
Explantion :
currency exchange rates have become More volatite and less predictable than they were between 1945 and 1973.
_______________________________________________
2. Under a floating exchange rate system, a country’s ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.
True
___________________________________________________
3. The objective of establishing the World Bank was to:
b. promote general economic development.
______________________________________________________________
4. Many of the world’s developing nations peg their currencies, primarily to the _____.
a. U.S. dollar
_____________________________________________________
5. The International Monetary Fund been criticized for:
a. its lack of “one-size-fits-all” approach to macroeconomic policy.
___________________________________________________-
6. The major problem with the gold standard was that no multinational institution could stop countries from engaging in competitive devaluations.
True
______________________________________________________________
7. Which of the following is an argument for a fixed exchange rate system?
hat governments do not expand the monetary supply too rapidly, thus causing high price inflation.
___________________________________________________________
8. Some economists argue that higher inflation rates might be good if the consequence is greater growth in aggregate demand.
True
___________________________________________________________________
9. Under the U.S. macroeconomic policy package of 1965-1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by:
c. an increase in the money supply.
__________________________________________________________
11. Which of the following was a reason that led to the collapse of the gold standard in 1939?
c. A cycle of competitive currency devaluations by various countries
_______________________________________________________________
12. Which of the following statements is true about the various exchange rate systems?
e. In dirty float, the exchange rate between a currency and other currencies is relatively fixed against a reference currency exchange rate.
______________________________________________________________
13. Under a pegged exchange rate regime, a country will peg the value of its currency to that of a major currency, so that if the reference currency rises in value, its own currency rises too.
True
______________________________________________________________________
15. An advantage of a pegged exchange rate system is that it imposes monetary discipline on a country and leads to low _____.
b. price inflation
_____________________________________________________________________
16. Which of the following was the weakness of the Bretton Woods system?
b. It could not work if the U.S. dollar was under speculative attack.
_______________________________________________________________________
17. When the Bretton Woods participants established the World Bank, the need to lend money to third world nations was foremost in their minds.
False
Explantion
When the Bretton Woods participants established the World Bank the need to reconstruct the economies of war-torn economies of Europe was foremost in their minds.
___________________________________________________________________
18. Which of the following was abandoned as per the Jamaica agreement of 1976?
c. Gold as a reserve asset
_____________________________________________________________________
19. Under the Plaza Accord of 1985, the Group of Five major industrial countries concluded that it would be desirable if:
d. most major currencies appreciated vis-à-vis the U.S. dollar.
__________________________________________________
20.The activities of the International Monetary Fund have declined after the collapse of the Bretton Woods system in 1973.
True
_________________________________________________________________________
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