Question 1

Which of the following is a feature of the current monetary system?

Accepted Answer

A)  It is free from government intervention.
B)  It is free from volatile movements in exchange rates.
C)  It has increased foreign exchange risk for businesses.
D)  It has made it easier to get insurance coverage against exchange rate changes.
E)  Instruments like forward market and swaps have lost their importance in the present system.F) A) and E)
G) A) and D)

Question 2

Which of the following was the weakness of the Bretton Woods system?

Accepted Answer

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.F) B) and D)
G) B) and C)

Question 3

The collapse of the fixed exchange rate system has been traced to the:

Accepted Answer

A)  U.S. macroeconomic policy package of 1965-1968.
B)  inflexibility of the fixed exchange rate system that led to high unemployment.
C)  Marshall Plan, under which the United States lent money heavily to European nations.
D)  failure of the International Monetary Fund to impose monetary discipline.
E)  increased taxes in the United States to finance its welfare programs.F) All of the above
G) A) and D)

Question 4

Elaborate on the main criticisms of the International Monetary Fund's approach to financial crises.

Accepted Answer

One criticism is that the International ...

Question 5

The architects of the Bretton Woods agreement built limited flexibility into the fixed exchange rate system in order to:

Accepted Answer

A)  avoid high unemployment.
B)  facilitate competitive currency devaluations.
C)  widen balance-of-payments gap between countries.
D)  increase money supply and thereby price inflation.
E)  avoid balance-of-trade equilibrium between countries.F) A) and B)
G) B) and D)

Question 6

Contracting out manufacturing may be more appropriate for high-value-added manufacturing.

Accepted Answer

A) True 
 B)False

Question 7

It can be very difficult for a small country to maintain a peg against another currency if capital is flowing out of the country and foreign exchange traders are speculating against the currency.

Accepted Answer

A) True 
 B)False

Question 8

Briefly describe the Bretton Woods agreement of 1944.

Accepted Answer

In 1944, at the height of World War II, ...

Question 9

What was the effect of the Marshall Plan?

Accepted Answer

A)  The United States lent money directly to European nations to help them rebuild their economies.
B)  Member countries of the International Monetary Fund were free to engage in competitive currency devaluations.
C)  The World Bank lent funds to reconstruct the war-torn economies of Europe.
D)  The United States lent money to third-world nations to support their public-sector projects.
E)  The World Bank lent money to the International Monetary Fund so that it could finance deficit-laden countries.F) D) and E)
G) B) and D)

Question 10

Which of the following is true of a banking crisis?

Accepted Answer

A)  It leads to individuals and companies withdrawing their deposits from banks.
B)  It results in a sharp appreciation in the value of the currency.
C)  It happens due to a decline in domestic borrowing.
D)  It occurs due to asset price deflation.
E)  It results in low government deficits.F) A) and E)
G) A) and D)

Question 11

Which of the following arises when people behave recklessly because they know they will be saved if things go wrong?

Accepted Answer

A)  Systemic risk
B)  Moral hazard
C)  Ethical dilemma
D)  Tragedy of the commons
E)  Risk compensationF) A) and B)
G) A) and C)

Question 12

According to the noted economist Jeffrey Sachs, the International Monetary Fund should:

Accepted Answer

A)  not be accountable to anyone as it is a powerful institution.
B)  bail out banks that have rash lending policies.
C)  have a "one-size-fits-all" approach to macroeconomic policy.
D)  keep its operations open to greater outside scrutiny.
E)  lend only to countries with safe credit ratings.F) None of the above
G) C) and E)

Question 13

The disadvantage of a pegged exchange rate regime is that it aggravates inflationary pressures in a country.

Accepted Answer

A) True 
 B)False

Question 14

In response to the global financial crisis of 2008-2009, the International Monetary Fund began to:

Accepted Answer

A)  exercise tight controls on fiscal policy of the borrowing countries.
B)  encourage activities that prevent high inflation rates.
C)  display inflexibility in policy responses.
D)  urge countries to adopt policies that included fiscal stimulus and monetary easing.
E)  adopt a "one-size-fits-all" approach to macroeconomic policy.F) B) and E)
G) A) and C)

Question 15

All International Monetary Fund loan packages come with conditions attached. Elaborate.

Accepted Answer

By 2013, the International Monetary Fund...

Question 16

How does the International Monetary Fund (IMF)  provide loans to deficit-laden countries?

Accepted Answer

A)  It prints the required currencies, thereby increasing money supply in those countries.
B)  It acts as a market, buying goods from these countries and selling them to developed countries.
C)  A pool of gold and currencies contributed by its members provides the resources for lending operations.
D)  The World Bank lends the required amount to the IMF at a low interest rate.
E)  It collects money from those countries that wish to devaluate their currencies.F) All of the above
G) C) and D)

Question 17

Which of the following was the initial mission of the World Bank?

Accepted Answer

A)  Maintaining order in the international monetary system
B)  Financing the building of Europe's economy by providing low-interest loans
C)  Taking over as the successor to the International Monetary Fund
D)  Reviving the gold standard system
E)  Enforcement of the floating exchange rate systemF) A) and D)
G) A) and E)

Question 18

Which of the following is a reason for the emergence of the gold standard?

Accepted Answer

A)  Expansion in the volume of international trade due to the Industrial Revolution
B)  Inability of governments to convert gold into paper currency on demand at a fixed rate
C)  Widening gap between the developed and the developing nations
D)  Failure of the Bretton Woods fixed exchange rate system
E)  Failure of the U.S. dollar to act as a reference currencyF) B) and E)
G) A) and B)

Question 19

Under a currency board system, the government has the absolute authority to set interest rates.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following explains the rise of the dollar against most major currencies in the late 1990s, even though the United States was still running a significant balance-of-payments deficit?

Accepted Answer

A)  Reduced government intervention in the foreign exchange market
B)  Increased foreign investments in U.S. financial assets
C)  Low real interest rates in the United States compared to the rest of the world
D)  Increased exports as opposed to imports
E)  Increased communism in the United StatesF) C) and D)
G) B) and E)

Exam 11: The International Monetary System

What was the effect of the Marshall Plan?

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The architects of the Bretton Woods agreement built limited flexibility into the fixed exchange rate system in order to:

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Which of the following was the initial mission of the World Bank?

Correct AnswerverifiedShow Answer

Which of the following was the weakness of the Bretton Woods system?

Correct AnswerverifiedShow Answer

Which of the following is a reason for the emergence of the gold standard?

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Under a currency board system, the government has the absolute authority to set interest rates.

Correct AnswerverifiedShow Answer

The collapse of the fixed exchange rate system has been traced to the:

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In response to the global financial crisis of 2008-2009, the International Monetary Fund began to:

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Contracting out manufacturing may be more appropriate for high-value-added manufacturing.

Correct AnswerverifiedShow Answer

All International Monetary Fund loan packages come with conditions attached. Elaborate.

Correct AnswerverifiedBy 2013, the International Monetary Fund...View AnswerShow Answer

Briefly describe the Bretton Woods agreement of 1944.

Correct AnswerverifiedIn 1944, at the height of World War II, ...View AnswerShow Answer

Which of the following is a feature of the current monetary system?

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How does the International Monetary Fund (IMF) provide loans to deficit-laden countries?

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Elaborate on the main criticisms of the International Monetary Fund's approach to financial crises.

Correct AnswerverifiedOne criticism is that the International ...View AnswerShow Answer

It can be very difficult for a small country to maintain a peg against another currency if capital is flowing out of the country and foreign exchange traders are speculating against the currency.

Correct AnswerverifiedShow Answer

Which of the following explains the rise of the dollar against most major currencies in the late 1990s, even though the United States was still running a significant balance-of-payments deficit?

Correct AnswerverifiedShow Answer

According to the noted economist Jeffrey Sachs, the International Monetary Fund should:

Correct AnswerverifiedShow Answer

Which of the following arises when people behave recklessly because they know they will be saved if things go wrong?

Correct AnswerverifiedShow Answer

The disadvantage of a pegged exchange rate regime is that it aggravates inflationary pressures in a country.

Correct AnswerverifiedShow Answer

Which of the following is true of a banking crisis?

Correct AnswerverifiedShow Answer

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By 2013, the International Monetary Fund...
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In 1944, at the height of World War II, ...
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One criticism is that the International ...
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