Question 1

The monetary approach states that,under a fixed exchange rate system,an excess demand for money leads to a trade deficit.

Accepted Answer

A) True 
 B)False

Question 2

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

Accepted Answer

A)   an unsterilized foreign exchange intervention.
B)   a sterilized foreign exchange intervention.
C)   a balance-of-payment exchange rate rule.
D)   monetary neutrality.E) A) and C)
F) B) and C)

Question 3

The MAER emphasizes money demand and money supply as determinants of exchange rate movements.

Accepted Answer

A) True 
 B)False

Question 4

Assume floating exchange rates.Suppose there are a 5% growth in U.S output and a 5% increase in foreign inflation.Then,which of the following will offset these changes?

Accepted Answer

A)   10% increase in money supply.
B)   10% decrease in money supply.
C)   10% increase in the exchange rate.
D)   The two changes offset each other.E) All of the above
F) A) and B)

Question 5

Under MABP,the full effect of the monetary policy is felt on the exchange rate.

Accepted Answer

A) True 
 B)False

Question 6

"Under the monetary approach to exchange rate,a rise in domestic income will cause a depreciation of domestic currency."

Accepted Answer

A) True 
 B)False

Question 7

According to the monetary approach of the balance of payments MABP,if the foreign inflation rate decreases 50%,the U.S.foreign reserves will

Accepted Answer

A)   increase because foreign central bank buys U.S. dollars and sells its currency.
B)   increase because foreign central bank buys its currency and sells U.S. dollars.
C)   decrease because foreign central bank buys U.S. dollars and sells its currency.
D)   decrease because foreign central bank buys its currency and sells U.S. dollars.E) B) and C)
F) A) and B)

Question 8

Assume there is a reduction in U.S.output.Then under MAER there will be an:

Accepted Answer

A)   Increase in domestic money supply
B)   Decrease in domestic money supply
C)   Increase in the exchange rate dollar/foreign currency
D)   Decrease in the exchange rate dollar/foreign currencyE) A) and C)
F) A) and B)

Question 9

In a perfectly floating exchange rate regime,according to the monetary approach to the exchange rate MAER,what would be the effect of a decrease in U.S.output growth by 3% on the dollar price of a Swiss franc $/SFr?

Accepted Answer

A)   Swiss franc would depreciate against the dollar.
B)   Swiss franc would appreciate against the dollar.
C)   The exchange rate remains unaffected.
D)   The dollar would appreciate against the Swiss Franc.E) None of the above
F) All of the above

Question 10

Suppose the U.S.income grows by 4 percent.Under the MABR,which of the following percentage changes could offset this growth?

Accepted Answer

A)   International reserves increase by 2 percent and foreign inflation rises by 2 percent
B)   International reserves increase by 2 percent and foreign inflation falls by 2 percent
C)   International reserves decrease by 2 percent and foreign inflation rises by 2 percent
D)   International reserves decrease by 2 percent and foreign inflation falls by 2 percentE) C) and D)
F) B) and C)

Question 11

Under the flexible exchange rate regime,which of the following variables in the monetary approach becomes zero and is dropped out of the equation?

Accepted Answer

A)   Percentage change in domestic credit
B)   Percentage change in spot exchange rate
C)   Percentage change in foreign reserves
D)   Percentage change in money demandE) All of the above
F) A) and D)

Question 12

The basic premise of the monetary approach is that:

Accepted Answer

A)   Exchange rate movements change according to uncontrolled shocks.
B)   Holdings of international reserves should be minimized.
C)   Any balance of payments disequilibrium is based on a monetary disequilibrium.
D)   People's willingness to hold money can alter exchange rates but not the balance of payments.E) B) and D)
F) A) and B)

Question 13

When the central bank increases the money supply,

Accepted Answer

A)   the money supply curve shifts to the left and interest rate rises.
B)   the money supply curve shifts to the left and interest rate falls.
C)   the money supply curve shifts to the right and interest rate rises.
D)   the money supply curve shifts to the right and interest rate falls.E) All of the above
F) None of the above

Exam 14: The Monetary Approach

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

Correct Answer
verified

In a perfectly floating exchange rate regime,according to the monetary approach to the exchange rate MAER,what would be the effect of a decrease in U.S.output growth by 3% on the dollar price of a Swiss franc $/SFr?

Correct Answer
verified

According to the monetary approach of the balance of payments MABP,if the foreign inflation rate decreases 50%,the U.S.foreign reserves will

Correct Answer
verified

Assume there is a reduction in U.S.output.Then under MAER there will be an:

Correct Answer
verified

The monetary approach states that,under a fixed exchange rate system,an excess demand for money leads to a trade deficit.

Correct Answer
verified

"Under the monetary approach to exchange rate,a rise in domestic income will cause a depreciation of domestic currency."

Correct Answer
verified

The MAER emphasizes money demand and money supply as determinants of exchange rate movements.

Correct Answer
verified

Suppose the U.S.income grows by 4 percent.Under the MABR,which of the following percentage changes could offset this growth?

Correct Answer
verified

The basic premise of the monetary approach is that:

Correct Answer
verified

When the central bank increases the money supply,

Correct Answer
verified

Assume floating exchange rates.Suppose there are a 5% growth in U.S output and a 5% increase in foreign inflation.Then,which of the following will offset these changes?

Correct Answer
verified

Under MABP,the full effect of the monetary policy is felt on the exchange rate.

Correct Answer
verified

Under the flexible exchange rate regime,which of the following variables in the monetary approach becomes zero and is dropped out of the equation?

Correct Answer
verified

Exam 14: The Monetary Approach

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

Correct AnswerverifiedShow Answer

In a perfectly floating exchange rate regime,according to the monetary approach to the exchange rate MAER,what would be the effect of a decrease in U.S.output growth by 3% on the dollar price of a Swiss franc $/SFr?

Correct AnswerverifiedShow Answer

According to the monetary approach of the balance of payments MABP,if the foreign inflation rate decreases 50%,the U.S.foreign reserves will

Correct AnswerverifiedShow Answer

Assume there is a reduction in U.S.output.Then under MAER there will be an:

Correct AnswerverifiedShow Answer

The monetary approach states that,under a fixed exchange rate system,an excess demand for money leads to a trade deficit.

Correct AnswerverifiedShow Answer

"Under the monetary approach to exchange rate,a rise in domestic income will cause a depreciation of domestic currency."

Correct AnswerverifiedShow Answer

The MAER emphasizes money demand and money supply as determinants of exchange rate movements.

Correct AnswerverifiedShow Answer

Suppose the U.S.income grows by 4 percent.Under the MABR,which of the following percentage changes could offset this growth?

Correct AnswerverifiedShow Answer

The basic premise of the monetary approach is that:

Correct AnswerverifiedShow Answer

When the central bank increases the money supply,

Correct AnswerverifiedShow Answer

Assume floating exchange rates.Suppose there are a 5% growth in U.S output and a 5% increase in foreign inflation.Then,which of the following will offset these changes?

Correct AnswerverifiedShow Answer

Under MABP,the full effect of the monetary policy is felt on the exchange rate.

Correct AnswerverifiedShow Answer

Under the flexible exchange rate regime,which of the following variables in the monetary approach becomes zero and is dropped out of the equation?

Correct AnswerverifiedShow Answer

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