ECO Sample Exam Questions
Terms in this set (34)
Prices are held constant in the ____, but not in the ____.
Asset model, monetary model
Supporters of fixed exchange rates argue ___.
Fixed exchange rates facilitate trade
Money market, short term, increase in output/income causes...
...interest rates to increase
Bretton-Woods system was established in...
Asset model, short term, decrease in money supply causes...
...interest rates to increase & exchange rates to decrease
The monetary model of exchange rate determination represents...
a combination of purchasing power parity and money market equilibrium
During the Inter-War period...
there was no multilateral exchange rate system
What was a cause which the gold standard was suspended?
An increased need for engaging in expansionary monetary policies.
The asset model approach seeks to predict...
The short-term pressures on exchange rates.
A rise in the expected
future spot exchange rate value will cause the exchange rate value of a foreign currency to...
If the U.S. Federal Reserve sells bonds in open-market operations, this will...
Decrease the money supply
Asset Model, an increase of money supply in the US would impact another country by...
Appreciate the foreign currency against the $ thus decreasing aggregate demand for foreign goods relative to U.S. goods
Features of Bretton Woods system
1) The US dollar is fixed at $35/ounce of gold.
2) All other currencies are fixed against the US dollar.
3) All other currencies are fixed against each other
An expected depreciation of a currency will lead to...
a decrease in the demand for that currency-denominated financial assets
Reasons to devalue a currency.
1) To fight domestic unemployment.
2) To increase exports.
3) To smooth business cycles
Time period where most currencies were in the Gold Standard.
An immediate effect to an increase in money supply is...
All other currencies will appreciate to that currency
An increase in the U.S. interest rate is most likely to result in...
Increase in capital inflows to the US
Monetary approach, decrease in money supply will lead to...
an appreciation of the U.S. dollar vis-a-vis other currencies.
Domestic real money demand increases. To keep current exchange rate, what should they do?
Decrease money supply
The asset market approach emphasizes...
the supply of (and demand for) money, and the
interest rate parity, as key exchange rate determinants.
The central bank allows individuals to redeem currency for gold at a fixed price is a feature of...
The Gold Standard
Monetary model, increase in domestic money supply will cause domestic currency to...
A fixed exchange rate regime increases the discipline...
...of the monetary authority.
Most countries ___ have a fixed exchange rate
Foreign exchange market interventions by Central Bank are often used to maintain or influence...
the actual market exchange rate
Capital controls are used as a tool for defending a...
fixed exchange rate regime.
The Bretton Woods conference led to the creation of the ...
International Monetary Fund (IMF)
An increase in domestic GDP will lead to a(n) _____ of the domestic currency.
The role of International Monetary Fund (IMF) is that of...
An international lending facility
By adopting a floating exchange rate regime, a government allows the market to determine...
the exchange rate of its currency
The current world exchange rate system is usually described as
a floating exchange rate
. Mexico was forced to abandon the peso/dollar peg in...
Central Banks can change domestic interest rates to influence short-term capital flows and thereby defend a...
fixed exchange rate.