Question 1

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Question text
Under a fixed exchange rate regime, if a countryʹs central bank runs out of international
reserves, it cannot keep its currency from ____________

Select one:

a.
appreciating.

b.
depreciating.

c.
inflating.

d.
deflating.
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Question 2
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In an agreement to exchange dollars for euros in three months at a price of $0.90 per euro, t
he price is the __________

Select one:

a.
forward exchange rate.

b.
spot exchange rate

c.
money exchange rate.

d.
fixed exchange rate.
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Question 3
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The theory of purchasing power parity cannot fully explain exchange rate movements becau
se ___________

Select one:

a.
fiscal policy differs across countries.

b.
some goods are not traded between countries.

c.
monetary policy differs across countries.

d.
all goods are identical even if produced in different countries.
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Question 4
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 Question text
The immediate (two-day) exchange of one currency for another is a ___________

Select one:

a.
exchange transaction.

b.
spot transaction.

c.
money transaction.

d.
forward transaction.
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Question 5
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A monetary policy strategy that uses a fixed exchange rate regime that ties the value of a
currency to the currency of a large, low inflation country is called ________ targeting.

Select one:

a.
exchange-rate

b.
inflation

c.
currency
d.
monetary
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Question 6
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The monetary policy strategy that provides an automatic rule for the conduct of monetary
policy is ___________

Select one:

a.
monetary targeting.

b.
inflation targeting.

c.
the implicit nominal anchor.

d.
exchange-rate targeting.
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Question 7
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What is the exchange rate?
Select one:

a.
the price of one currency relative to gold.

b.
the value of a currency relative to inflation.

c.
the price of one currency relative to another.

d.
the change in the value of money over time.
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Question 8
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A central bank ________ of domestic currency and corresponding ________ of foreign assets in
the foreign exchange market leads to an equal decline in its international reserves and the
monetary base, everything else held constant.

Select one:

a.
purchase; sale

b.
purchase; purchase

c.
sale; purchase

d.
sale; sale
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Question 9
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Exchange rates are determined in _________

Select one:

a.
the stock market.

b.
the capital market.

c.
the money market.

d.
the foreign exchange market.
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Question 10
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The theory of asset demand suggests that the most important factor affecting the demand f
or domestic and foreign assets is ____________________

Select one:

a.
the level of trade and capital flows.
b.
the riskiness of these assets relative to one another.

c.
the expected return on these assets relative to one another.

d.
the liquidity of these assets relative to one another.
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Question 11
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A foreign exchange intervention with an offsetting open market operation that leaves the
monetary base unchanged is called ____________

Select one:

a.
an unsterilized foreign exchange intervention.

b.
a sterilized foreign exchange intervention

c.
an exchange rate feedback rule.

d.
a money neutral foreign exchange intervention.
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Question 12
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Question text
The accounts that show international transactions involving currently produced goods and
services are called the ___________

Select one:

a.
current account.

b.
capital account.

c.
balance of payments.

d.
trade balance.
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Question 13
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The difference between merchandise exports and imports is called the ________ balance.

Select one:

a.
trade

b.
official reserve transactions
c.
capital account

d.
current account
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Question 14
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Question text
The World Bank is an international organization that:

Select one:

a.
makes loans to countries to finance projects such as dams and roads.

b.
helps developing countries that have been having difficulties in repaying their loans to
come to terms with lenders in the West.

c.
promotes the growth of trade by setting rules for how tariffs and quotas are set by
countries.

d.
makes loans to countries with balance of payment difficulties.
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Question 15
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 Question text
Which of the following is not a disadvantage of exchange-rate targeting?

Select one:

a.
It can weaken the accountability of policymakers.

b.
The targeting country is left open for a speculative attack.

c.
The targeting country gives up an independent monetary policy.

d.
It relies on a stable money-inflation relationship.
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Question 16
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Question text
An agreement to exchange dollar bank deposits for euro bank deposits in one month is a
___________

Select one:

a.
spot transaction.

b.
forward transaction.

c.
deposit transaction.
d.
future transaction.
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Question 17
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Which of the following is not a disadvantage of inflation targeting?

Select one:

a.
Too much rigidity

b.
Delayed signaling

c.
Potential for decreased output fluctuations

d.
Low economic growth
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Question 18
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Today 1 euro can be purchased for $1.10. This is the __________

Select one:

a.
fixed exchange rate.

b.
forward exchange rate.

c.
spot exchange rate.

d.
financial exchange rate.
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Question 19
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The ________ states that exchange rates between any two currencies will adjust to reflect
changes in the price levels of the two countries.

Select one:

a.
law of one price

b.
quantity theory of money

c.
theory of money neutrality

d.
theory of purchasing power parity
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Question 20
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Everything else held constant, if a central bank makes a sterilized purchase of foreign assets,
then the domestic currency will ________.

Select one:

a.
either appreciate, depreciate, or remain constant

b.
not be affected

c.
depreciate

d.
appreciate
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Question 1
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Question text
The demand for money as a cushion against unexpected contingencies is called the
___________________

Select one:

a.
precautionary motive.
b.
insurance motive.

c.
transactions motive.

d.
speculative motive.
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Question 2
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The aggregate demand curve is the total quantity of an economyʹs __________________

Select one:

a.
final goods and services demanded at a particular price level.

b.
intermediate goods demanded at a particular price level.

c.
intermediate goods demanded at all price levels.

d.
final goods and services demanded at different price levels.
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Question 3
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 Question text
When inflation is defined to be a condition of a continually rising price level, ________
economists agree with Milton Friedmanʹs proposition that inflation is a monetary phenomen
on.

Select one:

a.
almost all

b.
no

c.
very few

d.
about half of practicing
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Question 4
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A negative supply shock causes ________ to ________.

Select one:

a.
short-run aggregate supply; decrease

b.
aggregate demand; decrease

c.
short-run aggregate supply; increase
d.
aggregate demand; increase
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Question 5
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The long-run aggregate supply curve is ___________

Select one:

a.
a vertical line through the current level of output.

b.
a vertical line through the natural rate level of output.

c.
a vertical line through the non-inflationary rate of output.

d.
a horizontal line through the current level of output.

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Question 6
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The aggregate supply curve shows the relationship between _____________

Select one:
a.
the price level and the level of inputs.

b.
the wage rate and the level of employment.

c.
the level of inputs and aggregate output.

d.
the price level and the level of aggregate output supplied.
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Question 7
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The velocity of money is defined as ____________

Select one:

a.
real GDP divided by the money supply.

b.
real GDP times the money supply.

c.
nominal GDP times the money supply.

d.
nominal GDP divided by the money supply.
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Question 8
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Question text
The money market is in equilibrium ________.

Select one:

a.
at any point on the LM curve

b.
only at the intersection of the IS and LM curves

c.
at any point on the IS curve

d.
at only one point on the LM curve
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Question 9
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Question text
According to aggregate demand and supply analysis, inflation is caused by
_____________________

Select one:

a.
rising prices.

b.
expansionary fiscal policies.
c.
expansionary monetary policies.

d.
supply shocks.
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Question 10
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Question text
The condition of a continually rising price level is defined as _____________

Select one:

a.
stagnation.

b.
inflation.

c.
disinflation.

d.
stagflation.
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Question 11
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Question text
Countries with the highest inflation rates are likely to have _______________

Select one:

a.
small budget deficits relative to GDP.

b.
the highest rates of money growth.

c.
non accommodating monetary policy.

d.
the lowest interest rates.
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Question 12
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Question text
The Keynesian theory of money demand emphasizes the importance of ________________

Select one:

a.
a constant velocity.

b.
interest rates on the demand for money.

c.
irrational behavior on the part of some economic agents.

d.
expectations.
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Question 13
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Question text
The ________ describes the points for which the goods market is in equilibrium.

Select one:

a.
consumption function

b.
investment schedule

c.
IS curve

d.
LM curve
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Question 14
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Question text
When does inflation occur?

Select one:

a.
the price level rises continuously over a period of time.
b.
the price level rises.

c.
the money supply increases.

d.
the price level falls continuously over a period of time.
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Question 15
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His analysis started with the recognition that the total quantity demanded of an economyʹs
output was the sum of four types of spending: consumer expenditure, planned investment
spending, government spending, and net exports.

Select one:

a.
Sir John Hicks

b.
Milton Friedman

c.
John Maynard Keynes

d.
Paul A. Samuelson
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Question 16
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Question text
What is the equation of exchange?

Select one:

a.
M+Y=V+P

b.
M×P=V×Y

c.
M+V=P+Y

d.
M × V = P ×Y
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Question 17
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Question text
Actual investment spending is comprised of two components:

Select one:

a.
unplanned investment and inventory investment.

b.
planned investment and fixed investment.
c.
fixed business investment and fixed housing investment.

d.
fixed investment and actual inventory investment.
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Question 18
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Question text
One way to derive aggregate demand is by looking at its four component parts, which are:

Select one:

a.
consumer expenditures, planned investment spending, government spending, and net
exports.

b.
consumer expenditures, planned investment spending, government spending, and taxes.

c.
consumer expenditures, actual investment spending, government spending, and net
exports.

d.
consumer expenditures, planned investment spending, government spending, and gross
exports.
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Question 19
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Question text
The quantity theory of money is a theory of how _______________________

Select one:

a.
the money supply is determined.

b.
the nominal value of aggregate income is determined.

c.
interest rates are determined.

d.
the real value of aggregate income is determined.
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Question 20
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Question text
Because inflation was not a serious problem during the Great Depression, Keynesʹs analysis
assumed ____________________

Select one:

a.
that unemployment also was not a problem.

b.
that monetary policy is not effective.

c.
that the money supply was fixed.
d.
that the price level was fixed.
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