Oxford University Press | Online Resource Centre

Choose your answers from a-d by clicking the radio button next to each choice and then press 'Submit' to get your score.

Question 01

According to the Hume mechanism a trade deficit implied a (A) _________ money supply. This leads to a capital account (B) _________ . With a (C) _________ money supply prices would (D) _________ which improved the country's competitiveness that in turn restores (E) _________

a) (A) growing; (B) surplus; (C) larger; (D) rise; (E) the trade balance

b) (A) shrinking; (B) deficit; (C) lower; (D) fall; (E) imports

c) (A) shrinking; (B) surplus; (C) lower; (D) fall; (E) the trade balance

d) (A) growing; (B) deficit; (C) larger; (D) rise; (E) exports

Question 02

Which of the following is not seen as an advantage of the gold standard?

a) A nation's money supply was exogenous.

b) Inflation is unlikely to emerge as a significant problem.

c) No country need serve at the centre of this fixed exchange rate system.

d) The monetary mechanism has credibility.

Question 03

With the decision to let sterling float in September 1931, the gold standard came to an end. The decision to let sterling float was taken because:

a) silver was significantly overvalued with respect to gold at the official parity.

b) silver was significantly undervalued with respect to gold at the official parity.

c) sterling's parity was not properly aligned with its price level and was undervalued.

d) British official liabilities exceeded Britain's gold reserves.

Question 04

The fatal flaw of the Bretton Woods system was that:

a) sterling was overvalued and the French franc was undervalued leading to a loss of gold reserves by Great Britain.

b) the growth of the global economy brought with it a demand for dollars to be held as international reserves that exceeded the US gold reserves.

c) the World Bank was underfunded by member central banks.

d) it was too weak to survive simultaneous speculative attacks on the Italian and UK currencies in 1992.

Question 05

Before the introduction of the European Monetary Union in 1999, the monetary arrangement for the European Community currencies was called:

a) the European Currency Union (ECU).

b) the European Monetary System ( EMS).

c) the European Monetary Fund (EMF).

d) the Maastricht Exchange Parities.

Question 06

Which of the following aspects of an international monetary system does not belong to the "impossible trilogy" that follows from the Mundell-Fleming model?

a) Monetary policy independence

b) Full capital mobility

c) Fixed exchange rates

d) Sticky short-run prices

Question 07

The functions of the International Monetary Fund include all of the following except:

a) to provide emergency loans to countries facing balance of payments problems.

b) to monitor macroeconomic developments continuously in member countries.

c) to serve as the world central bank.

d) to provide a line of credit for each member country.

Question 08

Suppose there is a group of trading countries deciding whether to establish a fixed or flexible exchange rate system for the group. They should choose a flexible exchange rate system if: AD and AS shocks tend to be (A) _________ and (B) _________ would significantly reduce intragroup trade.

a) (A) country specific; (B) exchange rate volatility

b) (A) country specific; (B) adverse AD shocks

c) (A) common to the group; (B) exchange rate volatility

d) (A) common to the group; (B) adverse AD shocks

Oxford University Press, Online Resource Centre, Chapter 20.

Chapter 20

Instructions