Topic: Currency and Monetary Policy

Question 1

What currency does China use?

Answer 1

Renminbi or Yuan

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Question 2

What currency does Japan use?

Answer 2

Yen

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Question 3

Why is money useful over barter system?

Answer 3

• Barter is inefficient b/c may not be a match in terms of what is sought or in value
• Money is essential for investment
• And also credit (for businesses and personal use)
• Money allows for savings

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Question 4

Why do most countries have their own currencies?

Answer 4

To give governments control over economy, and how much money in circulation, to acheive: max levels of economic growth/employment without causing inflation

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Question 5

What’s the problem of inflation?

Answer 5

• Wipes out savings
• Makes normal business activity impossible
• Undermines politcal stability

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Question 6

What’s the problem of deflation?

Answer 6

• Causes economies to shrink
• Rise in unemployment
• Reduced standard of living

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Question 7

Give 3 examples of hyperinflation

Answer 7

• Germany in 1920’s
• Zimbabwe in 2007
• Venezuela in recent years

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Question 8

What are two components of monetary policy

Answer 8

• Central bank buying and selling bonds
• Interest rates

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Question 9

What is fiscal policy?

Answer 9

Government taxing and spending policy

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Question 10

What is the World Bank?

Answer 10

Global organization devoted to promoting economic development in poorer countries

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Question 11

What does the International Monetary Fund do?

Answer 11

• Assess and advise governments on their financial health
• Gives loans to countries in need, in exchange for commitments to change policy

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Question 12

What is a trade surplus?

Answer 12

A trade surplus occurs when a country’s total exports of goods and services exceed its total imports. This means the country is selling more abroad than it is buying from foreign markets

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Question 13

In practice, the price of Chinese goods is generally quoted in —, and even if a Brazilian company is importing those goods, it will usually pay the Chinese company in —.

Answer 13

dollars

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Question 14

Why is having a widely accepted reserve currency a good thing?

Answer 14

Promotes international trade and investment, making the world a richer place

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Question 15

Which 3 countries have the highest trade surpluses?

Answer 15

China, Russia, Saudi Arabia

(2022)

https://www.worldstopexports.com/report-card-for-trade-surpluses-and-deficits-by-country/?expand_article=1

Question 16

Foreign exchange reserves held be world’s central banks, name the top 2 (and percentages)…

Answer 16

USD (60%), Euro (20%)

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Question 17

What was the mechanism for world currency after WW2?

Answer 17

All were fixed to the dollar
dollar backed by gold

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Question 18

Why did the US close the gold window in 1971?

Answer 18

It didn’t have enough of the mineral to covert the world’s holdings of dollars (e.g. like Japan which ran large trade surpluses)

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Question 19

After dollar stopped being backed by gold, it became a — currency

Answer 19

fiat

Value derived from market

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Question 20

The exchange rate system following WW2, is associated with the …

Answer 20

Bretton Woods Agreement

1944-71

Question 21

And even governments that mostly let the market set the value of their currency do not, however, necessarily adopt a completely “hands-off” posture; they sometimes intervene in currency markets to buy or sell their own currency in an effort to moderate fluctuations. Such a situation is often described as a …

Answer 21

“managed float”

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Question 22

Who sets US monetary policy?

Answer 22

The Fed

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Question 23

What system of exchange rate does China have?

Answer 23

Managed float

Central Bank manages it within a set range

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Question 24

What is US’s debt vs. its GDP?

Answer 24

129%

2022

https://tradingeconomics.com/united-states/government-debt-to-gdp#:~:text=The%20United%20States%20recorded%20a,percent%20of%20GDP%20in%201981.