Question 1

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 until the Civil War, the United States adhered to a bimetallic standard, meaning that both gold and silver were used as legal tender and could be exchanged at a fixed ratio of 16:1. This was established by the Coinage Act of 1834 and was intended to stabilize the currency and promote international trade.

Question 2

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 3

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...

Question 4

Assuming perfect asset substitutability, can sterilized intervention by the central bank be effective? Please discuss.

Accepted Answer

The answer of Assuming perfect asset substitutability, can sterilized intervention...

Question 5

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

The answer of Explain how a country whose currency is...

Question 6

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...

Question 7

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...

Question 8

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

Accepted Answer

The answer of Briefly discuss the main advantage of the...

Question 9

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, meaning that the value of the currency was backed by a fixed amount of gold. This meant that the government could only print as much money as it had gold reserves to back it up, which helped to stabilize the economy and control inflation.

Question 10

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...

Question 11

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...

Question 12

List the drawbacks of the gold standard.

Accepted Answer

The answer of List the drawbacks of the gold standard....

Question 13

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 14

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 fixed exchange rates. For example, if a government tries to maintain an exchange rate that is too high, it may cause its exports to become too expensive and its imports to become too cheap, leading to a trade deficit and a drain on its foreign reserves. Similarly, if a government tries to maintain an exchange rate that is too low, it may cause its exports to become too cheap and its imports to become too expensive, leading to a trade surplus and a buildup of foreign reserves. In both cases, the government may eventually run out of foreign reserves and be forced to devalue its currency, leading to a balance of payments crisis.

Question 15

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...

Question 16

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...

Question 17

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

Accepted Answer

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

Question 18

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 19

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...

Question 20

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

The answer of Describe the mechanism which would take place...

Quiz 18: Fixed Exchange Rates and Foreign Exchange Intervention

From 1837 and up until the Civil War, the United States adhered to a

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.