EXAM #2

Question 1

Which is FALSE about purchasing power parity (PPP)?

Answer 1

It is rare to see deviations from PPP.

Question 2

What defines a hard peg?

Answer 2

An exchange rate not allowed to vary.

Question 3

Which is NOT true about Bretton Woods?

Answer 3

Trade deficits were eliminated.

Question 4

!! - If nominal exchange rate doesn’t change but U.S. prices rise:

Answer 4

Real exchange rate decreases; imports rise.

Question 5

When a U.S. firm requests foreign exchange, the bank will:

Answer 5

Call a foreign exchange broker.

Question 6

To protect against exchange rate risk, firms use:

Answer 6

The forward market.

Question 7

f PPP holds perfectly, inflation differences between U.S. and Canada:

Answer 7

Are offset by changes in the nominal exchange rate.

Question 8

Real exchange rate definition:

Answer 8

Market rate adjusted for price differences.

Question 9

NOT a gains of adopting a single-currency?

Answer 9

Widening the common market by adding countries.

Question 10

Expenditure-switching policies for current account deficits:

Answer 10

Turn spending toward domestic goods.

Question 11

Aggregate demand meets supply in the vertical AS curve region:

Answer 11

Demand increase raises prices, not output

Question 12

Changes in aggregate demand:

Answer 12

Can be caused by foreign spending changes.

Question 13

J-curve effect post-depreciation is due to:

Answer 13

Imports’ value rising more than exports’.

Question 14

J-curve shows after depreciation:

Answer 14

Current account worsens before improving.

Question 15

Intermediate inputs are:

Answer 15

Goods businesses buy for production.

Question 16

NOT a cause of the 1994 Mexican peso crisis:

Answer 16

IMF/NAFTA’s inability to predict it.

Question 17

NOT true about IMF lending:

Answer 17

IMF can distinguish national vs. systemic crises.

Question 18

False about real exchange rate (Rr = Rn × P/P):*

Answer 18

One-to-one correspondence with nominal rate.

Question 19

Sovereign default refers to:

Answer 19

Default on government debt.

Question 20

True about crises from volatile capital flows:

Answer 20

Tech advances increased volatility.

Question 21

May NOT help avoid a financial crisis:

Answer 21

Immediate bailouts of financial intermediaries.

Question 22

NOT a crisis outcome:

Answer 22

Increased domestic consumption.

Question 23

Expansionary policies + _____ exchange rate → crisis/recession:

Answer 23

Crawling peg.

Question 24

U.S. demand increase for Mexican peso causes:

Answer 24

Mexican goods to be cheaper.

Question 25

Traditional view of fixed rates:

Answer 25

Improved inflation but worse growth.

Question 26

Advantage of monetary policy:

Answer 26

Faster to implement than fiscal policy.

Question 27

Economic growth illustrated by:

Answer 27

Rightward AS shift.

Question 28

Savings, budget balance, current account relationship:

Answer 28

S + (T − G) = I + CA.

Question 29

Weak dollar → higher U.S. imports.

Answer 29

FALSE (weak dollar makes imports expensive).

Question 30

Most countries have fixed exchange rates.

Answer 30

TRUE (but major currencies float).

Question 31

Foreign firms investing in U.S. → dollar supply increases.

Answer 31

FALSE (demand for dollars rises, appreciating it).

Question 32

Higher interest rates → capital outflow & depreciation.

Answer 32

FALSE (attracts capital, causing appreciation).

Question 33

Monetary policy’s effect on current account is clearer than fiscal’s.

Answer 33

FALSE (fiscal’s effect is more direct).

Question 34

Easy to prescribe cures for macro-policy-caused crises.

Answer 34

TRUE (e.g., austerity for deficits).

Question 35

Pre-1970s IMF conditionality focused on immediate fixes.

Answer 35

TRUE (later addressed structural issues).