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Chapter 17: The International Monetary Fund
MULTIPLE CHOICE
1. Countries operating under the gold standard in the 19th century faced what important
constraint?
a. Capital mobility was limited.
b. The inability to conduct an independent monetary policy.
c. Fiscal policy was limited.
d. None of the above.
2. The Bretton Woods currency pegs could be change only in the case of:
a. A “fundamental disequilibrium.”
b. A capital account deficit.
c. A current account deficit.
d. None of the above.
3. How did the Triffen Dilemma affect the United States?
a. It decreased the international confidence in the value of the U.S. dollar against gold.
b. It increased the gap between the amounts of dollars and the value of the gold backing
it.
c. It forced the United States to supply dollars as a reserve currency.
d. All of the above.
4. President Nixon closed the “gold window” because:
a. The market price of gold rose above US$35 per ounce.
b. Capital began to flow out of US dollar assets into marks and yen.
c. The United States did not have enough gold to meet claims from outstanding dollars.
d. All of the above.
5. Which of the following is not a purpose of the IMF?
a. To facilitate the expansion of international trade.
b. To promote exchange stability.
c. To administer a code of conduct for world trade.
d. To reduce the duration and degree of international payment imbalance.
6. Which of the following is not an area of activity of the IMF?
a. Surveillance of world economic conditions.
b. Adjudicating trade disputes.
c. Dispensing policy advice.
d. Lending to countries with balance of payments imbalances.
7. Within the political economy considerations of IMF lending, why might a national
government actually prefer greater levels of conditionality than less?
a. It allows the government to overcome domestic opposition to reforms.
b. It involves a lower sovereignty cost than less conditionality.
c. It is an easy bargaining position of the IMF.
d. None of the above.
8. Which of the following is not a recent change at the IMF?
a. Quota reform.
b. Increased lending, including to European countries.
c. Changes in vote weighting.
d. Responding to the oil shock.
TRUE/FALSE
1. The higher an IMF member’s quota, the more it can borrow and the greater its voting
power.
2. The Executive Board is the highest decision-making body of the IMF.
3. Part of a member’s quota can be paid in its own national currency.
4. It is possible for a member with severe short-term difficulties to borrow amounts over its
total IMF reserves.
5. Reserve tranches refer to the first 75 percent of total reserves.
6. The reserve tranche has policy conditionalities associated with it.
7. Credit tranches are above the 25 percent reserve tranche.
8. The Keynes Plan called for adjustment by both countries with balance of payments
deficits and countries with balance of payments surpluses.
9. A “hard bargaining” position on the part of the IMF involves a smaller number of
conditions associated with a certain level of lending.
10. An “easy bargaining position on the part of the IMF involves a smaller number of
conditions associated with a certain level of lending.
SHORT ANSWER
1. What is the difference between the classical gold standard and the gold-exchange
standard?
2. How did the Bretton Woods adjustable peg work?
3. What was the Triffin dilemma?
4. Why did U.S. President Nixon close the “gold window?”
5. Why did the Smithsonian Agreement fail to preserve the Bretton Woods system? What
was the response to this failure?
6. What can IMF members do for assistance if they encounter balance of payments
difficulties?
7. What procedure does the IMF follow in terms of lending to a member country?
8. What are Special Drawing Rights, and what role have they played in IMF operations?
9. What are the three types of special or extended facilities that the IMF uses beyond the
credit tranches?
10. In the political economy of IMF lending, what is meant by “sovereignty cost” and why
might this matter less than previously thought?
