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| 1.
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The World Bank is responsible for maintaining order in the international monetary system, while the IMF promotes development. |
| | A) | True |
| | B) | False |
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| 2.
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When the income earned by the residents of a country from exports is equal to the money that is paid for imports, a country is said to be in balance of payments equilibrium. |
| | A) | True |
| | B) | False |
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| 3.
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The free float is currently the most popular exchange rate policy among IMF members. |
| | A) | True |
| | B) | False |
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| 4.
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A loss of confidence in the banking system in a country that leads to a run on banks is known as a currency crisis. |
| | A) | True |
| | B) | False |
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| 5.
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The IMF has been criticized for being too powerful an organization given that there is not real mechanism for its accountability. |
| | A) | True |
| | B) | False |
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| 6.
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The exchange rate system under the Bretton Woods Agreement was a ________ regime. |
| | A) | fixed |
| | B) | floating |
| | C) | pegged |
| | D) | dirty float |
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| 7.
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The key strength of the gold standard was |
| | A) | that it maintained a managed float system |
| | B) | that it maintained a dirty float system |
| | C) | that it was a mechanism for achieving balance of payments equilibrium by all countries |
| | D) | that all countries of the world maintained a stable currency |
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| 8.
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Under the Bretton Woods system, the only currency that remained convertible into gold was |
| | A) | the U.S. dollar |
| | B) | the British pound |
| | C) | the Swiss franc |
| | D) | The Japanese yen |
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| 9.
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Under a fixed exchange rate system, a country that increases its money supply would see its inflation rate _______ and its trade deficit _______. |
| | A) | rise, shrink |
| | B) | rise, widen |
| | C) | fall, shrink |
| | D) | fall, widen |
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| 10.
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The efforts of the World Bank to reconstruct the war torn economies of Europe at the conclusion of World War II were curtailed by |
| | A) | the IMF |
| | B) | the UN |
| | C) | the International Bank for Reconstruction and Development |
| | D) | the Marshall Plan |
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| 11.
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Since 1973, the international monetary system has been a ______ system. |
| | A) | fixed exchange rate |
| | B) | floating exchange rate |
| | C) | managed float |
| | D) | pegged exchange rate |
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| 12.
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For the Bretton Woods system to work, the U.S. needed to have a ______ inflation rate, and avoid a balance of payments ________. |
| | A) | high, equilibrium |
| | B) | high, surplus |
| | C) | low, deficit |
| | D) | low, surplus |
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| 13.
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Gold was abandoned as a reserve asset under |
| | A) | the Louvre Accord |
| | B) | the Plaza Accord |
| | C) | the Jamaica Agreement |
| | D) | the Bretton Woods Agreement |
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| 14.
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As compared to how they were between 1945 and 1973, exchange rates today are |
| | A) | slightly more volatile |
| | B) | much more volatile |
| | C) | less volatile |
| | D) | in equilibrium |
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| 15.
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About _______ percent of IMF members follow a managed float system. |
| | A) | 7 |
| | B) | 19 |
| | C) | 22 |
| | D) | 26 |
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| 16.
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According to IMF research, countries with a pegged exchange rate system had an average annual inflation rate that is ________ as compared to countries following a floating exchange rate system. |
| | A) | a little higher |
| | B) | significantly higher |
| | C) | about the same |
| | D) | lower |
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| 17.
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A currency crisis occurs when |
| | A) | there is a loss of confidence in the banking system that leads to a run on banks |
| | B) | a speculative attack on the exchange rate of a currency results in a sharp depreciation in the value of the currency |
| | C) | a country cannot service foreign debt obligations |
| | D) | consumer spending patterns significantly affect a country's balance of payments resulting in a negative effect on the country's currency |
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| 18.
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Which of the following is not a cause for banking, foreign debt, and/or currency crises? |
| | A) | low relative price inflation |
| | B) | a widening current account deficit |
| | C) | excessive expansion of domestic borrowing |
| | D) | asset price inflation |
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| 19.
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If a country has trouble servicing its foreign government debt obligations it maybe experiencing a |
| | A) | banking crisis |
| | B) | foreign debt crisis |
| | C) | currency crisis |
| | D) | financial crisis |
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| 20.
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Most of the IMF's loan activities since the mid-1970s have been targeted toward |
| | A) | developed countries |
| | B) | countries experiencing banking crises |
| | C) | developing countries |
| | D) | the foreign debt crisis |
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| 21.
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Which of the following is not a factor in the Asian currency crisis? |
| | A) | the debt bomb |
| | B) | decreasing capacity |
| | C) | expanding imports |
| | D) | the investment boom |
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| 22.
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The IMF has been criticized |
| | A) | for its insistence on low interest rates |
| | B) | for not helping developed countries |
| | C) | for its one-size-fits-all approach |
| | D) | for devoting too much attention to Third World countries |
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| 23.
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______ arises when people behave recklessly because they know they will be saved if things go wrong. |
| | A) | bandwagon effects |
| | B) | moral hazard |
| | C) | default effects |
| | D) | Chapter 23 |
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| 24.
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The IMF has received criticism |
| | A) | revolving around its lack of accountability |
| | B) | focusing on its failure to respond to the high value of the dollar |
| | C) | for its inability to work hand-in-hand with the World Bank |
| | D) | charging that the IMF has emphasized developing nations at the expense of developed countries |
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| 25.
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A firm that wants to maintain strategic flexibility and hedge against currency fluctuations can |
| | A) | disperse production to different locations in the world |
| | B) | narrow its product line |
| | C) | establish a central exporting operation in a single location |
| | D) | peg its currency |
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