Multiple Choice
Identify the
choice that best completes the statement or answers the question.
|
|
|
1.
|
Which is not an objective of policy makers when considering the appropriate
exchange rate regime?
a. | Exchange rate stability | c. | Output
stability | b. | Price stability | d. | Trade stability |
|
|
|
2.
|
Which is not an advantage of a fixed exchange rate?
a. | Maintain exchange rate stability through a fixed rate of exchange | b. | Maintain price
stability by tying monetary policy to the exchange rate | c. | Import inflation
discipline | d. | Offset demand shocks |
|
|
|
3.
|
Which of the following is true?
a. | Fixed regimes are best at achieving nominal (exchange
rate and price) stability, whereas floating regimes are better at dealing with real (output,
employment) disturbances. | b. | Fixed regimes are
best at dealing with real (output, employment) disturbances, whereas floating regimes are better at
achieving nominal (exchange rate and price) stability. | c. | Fixed regimes are
better at addressing balance of payment shocks, while floating regimes are better at dealing with
domestic shocks. | d. | Fixed regimes are better at addressing domestic disturbances, while floating regimes
are better at dealing with balance of payments shocks. |
|
|
|
4.
|
An exchange rate externality can be generated by all of the following except
for:
a. | A small open economy. | b. | A large open economy. | c. | Fiscal expansion
transmitted through movements in the exchange rate. | d. | Monetary expansion transmitted through
movements in the exchange rate. |
|
|
|
5.
|
Which of the following does not describe an aggregate demand externality?
a. | Fiscal expansion in one country leading an unsustainable trade deficit in that
country. | b. | Fiscal expansion in one country leading to trade surpluses in the rest of the
world. | c. | Fisal expansion leading to an increase in output if there is policy
coordination. | d. | Fiscal expansion leading to fall in export demand in the rest of the
world. |
|
|
|
6.
|
A country should join an Optimal Currency Area if
a. | costs outweigh the benefits of membership. | b. | benefits outweigh
the costs of membership. | c. | the country is on the OCA
line. | d. | the dynamics make sense. |
|
|
|
7.
|
Which of the following is not a concern embodied in the LL schedule?
a. | Loss of monetary policy | c. | Fear of symmetric
shocks | b. | Loss of exchange rate policy | d. | Fear of asymmetric
shocks |
|
|
|
8.
|
Which is not a relevant factor for determining an OCA?
a. | Degree of trade integration | b. | Degree of convergence in economic
cycles | c. | Potential for greater price competition | d. | Potential for
coordinated responses to shocks |
|
|
|
9.
|
Which of the following is not a correction mechanism for asymmetric
shocks?
a. | Wage and price flexibility | c. | Unemployment
rates | b. | Factor mobility | d. | Fiscal policy |
|
|
|
10.
|
Whether an OCA is likely to come about depends on
a. | the effect of increasing openness on income correlation. | b. | the effect of
increasing openness in reducing spillovers among member
states. | c. | the effect of
increasing openness on generating unemployment. | d. | the effect of increasing openness on moving
factors across borders. |
|