Question 1

From the Civil War up to 1914,the United States adhered to a
A)gold standard.
B)silver standard.
C)bimetallic standard.
D)bronze standard.
E)copper standard.

Accepted Answer

From the Civil War up to 1914, the United States adhered to the gold standard, which meant that the value of the dollar was linked to a fixed amount of gold. This meant that the value of the dollar was relatively stable and allowed for international trade and investment.

Question 2

From the figure below,please provide an explanation for the large decline in the growth rate of international reserves held by developing countries in the 2008-2009 period.

Accepted Answer

The answer of From the figure below,please provide an explanation...

Question 3

List the drawbacks of the gold standard.

Accepted Answer

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Question 4

Explain how a country whose currency is the reserve currency can use monetary policy for macroeconomic stabilization.In particular,explain the result if that country doubled its domestic money supply.

Accepted Answer

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Question 5

A balance of payments crises under fixed exchange rates occurs when
A)marginal returns on foreign exchange investments approach zero.
B)a country runs out of foreign reserves.
C)a country is in a liquidity trap.
D)forward currency markets undergo high volatility.
E)exports and imports expand beyond some point.

Accepted Answer

A balance of payments crisis under fixed exchange rates occurs when a country runs out of foreign reserves, as it means the country is unable to maintain the fixed exchange rate and may have to devalue its currency or seek external assistance.

Question 6

This question concerns the mechanism of a reserve currency standard.
Two countries,X and Y,have two currencies,x and y,fixed to the reserve currency,the U.S.dollar.Suppose the exchange rate between x and the U.S.dollar is 3x per dollar.Suppose the exchange rate between y and the U.S.dollar is 5y per dollar.Explain (using numbers)the mechanism if the x-y exchange rate was 0.8 x per y.

Accepted Answer

The answer of This question concerns the mechanism of a...

Question 7

Balance of payments crises under fixed exchange rates occur because of
A)government policies that are inconsistent with fixed exchange rates.
B)punitive currency wars.
C)global inflation and trade imbalances due to war.
D)excessive exports and imports that overload the global system.
E)monotonic expansion in global currency volume.

Accepted Answer

Balance of payments crises under fixed exchange rates occur when government policies are inconsistent with maintaining the fixed exchange rate. For example, if a country expands its money supply too quickly, it can create inflation and cause its currency to depreciate, which violates the fixed exchange rate. This can lead to a balance of payments crisis as foreign investors lose confidence in the country's ability to maintain the fixed exchange rate, leading to capital flight and a depletion of foreign exchange reserves.

Question 8

Please briefly describe what is meant by a gold exchange standard.

Accepted Answer

The answer of Please briefly describe what is meant by...

Question 9

Briefly discuss the main advantage of the bimetallic standard over the gold standard.

Accepted Answer

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Question 10

Describe the mechanism which would take place if the Bank of England decides to increase its money supply by purchasing domestic assets under the gold standard.

Accepted Answer

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Question 11

From 1837 and up until the Civil War,the United States adhered to a
A)gold standard.
B)silver standard.
C)bimetallic standard.
D)bronze standard.
E)copper standard.

Accepted Answer

From 1837 to 1862, the United States adhered to a bimetallic standard, which allowed both gold and silver to be used as legal tender. This means that the value of the currency was tied to both gold and silver, and individuals could choose which metal to use for transactions. The Coinage Act of 1837 established this bimetallic standard and maintained it until the Civil War, when the government temporarily suspended the convertibility of paper money into gold and silver.

Question 12

If assets are imperfect substitutes,then a decrease in the amount of domestic currency bonds held by the public will ________ the risk premium and ________ the amount of domestic currency bonds held by the central bank.
A)decrease;leave unchanged
B)increase;decrease
C)increase;increase
D)decrease;decrease
E)leave unchanged;decrease

Accepted Answer

The answer of If assets are imperfect substitutes,then a decrease...

Question 13

This question concerns the mechanism of a reserve currency standard.
Two countries,X and Y,have two currencies,x and y,fixed to the reserve currency,the U.S.dollar.Suppose the exchange rate between x and the U.S.dollar is 3x per dollar.Suppose the exchange rate between y and the U.S.dollar is 5y per dollar.Explain (using numbers)the mechanism if the x-y exchange rate was 0.5 x per y.

Accepted Answer

The answer of This question concerns the mechanism of a...

Question 14

Under the gold standard,if the dollar price of gold is pegged at $35 per ounce and the euro price of gold is pegged at 12 euro per ounce,what is the dollar/euro exchange rate?

Accepted Answer

The answer of Under the gold standard,if the dollar price...

Question 15

Assume that initially,the risk premium,ρ = 0 and that the domestic and foreign interest rates are given by R = .06,R* = .05.Suppose that the risk premium depends linearly on the difference between domestic government debt,B,and domestic assets of the central bank,A,i.e. ,
ρ =  How much will the central bank have to reduce domestic assets A s.t.the domestic interest rate will increase by (a)1% (b)4%?

Accepted Answer

The answer of Assume that initially,the risk premium,ρ = 0...

Question 16

Under the gold standard,if the dollar price of gold is pegged at $35 per ounce and the dollar/euro exchange rate is set at $2.40 per euro,what must the euro price of gold be pegged at?

Accepted Answer

The answer of Under the gold standard,if the dollar price...

Question 17

Assume that initially,the risk premium,ρ = 0 and that the domestic and foreign interest rates are given by R = .06,R* = .05.Suppose that the risk premium depends linearly on the difference between domestic government debt,B,and domestic assets of the central bank,A,i.e. ,
ρ =  Find the new domestic interest rate if a sterilized purchase of foreign assets adjusts A s.t.
(a)B - A = -.01/  (b)B - A = .01/  (c)B - A = .03/

Accepted Answer

The answer of Assume that initially,the risk premium,ρ = 0...

Question 18

If assets are imperfect substitutes,then an increase in the amount of domestic currency bonds held by the public will ________ the risk premium and ________ the amount of domestic currency bonds held by the central bank.
A)increase;leave unchanged
B)increase;decrease
C)increase;increase
D)decrease;decrease
E)leave unchanged;decrease

Accepted Answer

The answer of If assets are imperfect substitutes,then an increase...

Question 19

Does the signalling effect of foreign exchange intervention support or refute the claim that assets cannot be perfect substitutes if sterilized intervention is going to have any effect? Please explain.

Accepted Answer

The answer of Does the signalling effect of foreign exchange...

Question 20

Use a figure to show the effect of a sterilized central bank purchase of foreign assets under the imperfect asset substitutability assumption.

Accepted Answer

The answer of Use a figure to show the effect...

Quiz 18: Fixed Exchange Rates and Foreign Exchange Intervention

From the Civil War up to 1914,the United States adhered to a

From the figure below,please provide an explanation for the large decline in the growth rate of international reserves held by developing countries in the 2008-2009 period.

List the drawbacks of the gold standard.

Explain how a country whose currency is the reserve currency can use monetary policy for macroeconomic stabilization.In particular,explain the result if that country doubled its domestic money supply.

A balance of payments crises under fixed exchange rates occurs when

Balance of payments crises under fixed exchange rates occur because of