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1 | |
A net outflow of international reserves implies that |
| | A) | a country is experiencing an official reserve transactions surplus. |
| | B) | the domestic money supply is larger than the domestic demand for money. |
| | C) | domestic money demand is larger than the domestic money supply. |
| | D) | a and c. |
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2 | |
If an American exporter sells foreign exchange to the U.S. Federal Reserve, |
| | A) | demand for foreign currency will decrease. |
| | B) | the U.S. money supply will decrease. |
| | C) | demand for foreign currency will increase. |
| | D) | the U.S. money supply will increase |
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3 | |
Suppose the price level doubled and at the same time the interest rate fell. The demand for money should |
| | A) | increase. |
| | B) | decrease. |
| | C) | increase or decrease -- it depends on which effect is larger. |
| | D) | not change -- these variables do not affect the demand for money. |
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4 | |
If the exchange rate is fixed and, initially, money supply and money demand are in equilibrium, a decrease in the domestic money supply will lead to |
| | A) | a deficit in the private capital account. |
| | B) | a surplus in the current account. |
| | C) | a decrease in international reserves. |
| | D) | all of the above. |
| | E) | a and b only. |
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5 | |
If the exchange rate is not fixed, an increase in the domestic money supply will normally cause |
| | A) | a long term imbalance between domestic money supply and domestic money demand. |
| | B) | a depreciation of the domestic currency. |
| | C) | a balance of payments surplus. |
| | D) | an appreciation of the domestic currency. |
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6 | |
In a flexible exchange rate system, the domestic currency will depreciate (that is, e will rise) when |
| | A) | domestic income rises. |
| | B) | foreign income falls. |
| | C) | the foreign money supply rises. |
| | D) | the domestic money supply rises. |
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7 | |
A situation which, in the absence of exchange rate adjustments, a balance of payments deficit would exist, is known as a(n) |
| | A) | incipient balance of payments deficit. |
| | B) | balance of payments depreciation. |
| | C) | balance of payments appreciation. |
| | D) | incipient balance of payments surplus. |
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8 | |
The portfolio balance approach to the balance of payments and the exchange rate specifies |
| | A) | the factors influencing money demand, but ignores the factors influencing asset demand. |
| | B) | the factors influencing asset demand, but ignores the factors influencing money demand. |
| | C) | neither the factors influencing money demand nor those influencing asset demand. |
| | D) | both the factors influencing money demand and those influencing asset demand. |
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9 | |
Suppose that, while moving between equilibria, the exchange rate typically goes beyond the new equilibrium before eventually returning to it. This situation is known as exchange rate |
| | A) | deceleration. |
| | B) | convergence. |
| | C) | overshooting. |
| | D) | acceleration. |
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10 | |
The phenomenon of exchange rate overshooting was first described by |
| | A) | Paul Krugman. |
| | B) | David Ricardo. |
| | C) | Rudiger Dornbusch. |
| | D) | Dennis Appleyard. |
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