43) All countries were to fix the value of their currency in terms of gold but were not required to
exchange their currencies for gold, according to the 1944
A) Bretton Woods agreement.
B) Washington Consensus.
C) World Bank treaty.
D) Group of Five treaty.
E) United Nations agreement.
44) The objective of establishing the World Bank was to
A) revive the gold standard.
B) promote general economic development.
C) control and manage the International Monetary Fund.
D) promote a floating exchange rate system.
E) approve large currency devaluations.
45) One aspect of the Bretton Woods agreement was a commitment not to use ________ as a
measure to fix the value of currencies.
A) a planned economy
B) devaluation
C) isolationism
D) government loans
E) the U.S. dollar
46) A South American country has a fixed exchange rate regime. What would be the result if the
country rapidly increased its money supply by printing more currency?
A) It would lead to an increase in the worth of the currency.
B) The prices of imports would become more attractive in the country.
C) The country’s goods would be highly competitive in world markets.
D) Trade surplus in the country would increase.
E) It would lead to price deflation in the country.
47) The architects of the Bretton Woods agreement built limited flexibility into the fixed exchange
rate system in order to
A) avoid high unemployment.
B) facilitate competitive currency devaluations.
C) widen balance-of-payments gap between countries.
D) increase money supply and thereby price inflation.
E) avoid balance-of-trade equilibrium between countries.
48) How does the International Monetary Fund (IMF) provide loans to deficit-laden countries?
A) It prints the required currencies, thereby increasing money supply in those countries.
B) It acts as a market, buying goods from these countries and selling them to developed countries.
C) A pool of gold and currencies contributed by its members provides the resources for lending
operations.
D) The World Bank lends the required amount to the IMF at a low interest rate.
E) It collects money from those countries that wish to devaluate their currencies.
49) Which term was NOT defined in the International Monetary Fund’s Articles of Agreement but
was intended to apply to countries that had suffered permanent adverse shifts in the demand for
their products?
A) competitive disadvantage
B) capital flight
C) fundamental disequilibrium
D) break-even point
E) diseconomies of scale
50) Due to a variety of macroeconomic and microeconomic factors, two Eastern European nations
suffered permanent adverse shifts in the demand for their manufactured goods. Per the IMF’s
Articles of Agreement, these nations suffered from
A) a competitive advantage.
B) capital flight.
C) a fundamental disequilibrium.
D) a break-even point.
E) diseconomies of scale.
51) If Canada suffered from “fundamental disequilibrium,” and its government choose not to
devalue its currency, a likely consequence of this would be
A) a persistent trade surplus.
B) a balance-of-payments equilibrium.
C) an increase in exports.
D) high unemployment.
E) deflation.
52) The initial focus for the World Bank was to help
A) boost the money supply in North America.
B) reconstruct the war-torn economies of Europe.
C) assess the economic infrastructure of communist nations.
D) revive the gold standard system.
E) stimulate trade between Cuba and the United States.
53) The adoption of the Marshall Plan redirected the efforts of the World Bank and it then turned
its focus on
A) helping European nations rebuild after the war.
B) creating a balance-of-trade in Latin America.
C) creating the gold standard.
D) lending money to third-world nations.
E) eliminating inflation rates.
54) One aspect of the International Bank for Reconstruction and Development (IBRD) scheme of
the World Bank is that
A) the resources to fund IBRD loans are raised through subscriptions from wealthy members.
B) the interest rate charged by the World Bank is higher than commercial banks’ market rate.
C) the borrowers have to pay the bank’s cost of funds plus a margin for expenses.
D) the bank avoids offering low-interest loans to risky customers whose credit rating is often poor.
E) it was established to approve currency devaluations that are beyond 10 percent.
55) The International Development Association of the World Bank only provides loans to
A) entrepreneurial companies.
B) the poorest nations.
C) European countries.
D) Westernized nations.
E) start-up companies.
56) The collapse of the fixed exchange rate system has been traced to the
A) U.S. macroeconomic policy package of 1965-1968.
B) establishment of the gold standard.
C) Marshall Plan, under which the United States lent money to European nations.
D) failure of the International Monetary Fund to impose monetary discipline.
E) increased U.S. tax rate financing Great Depression-era programs.
57) Under the U.S. macroeconomic policy package of 1965–1968, President Lyndon Johnson
backed an increase in U.S. government spending that was financed by
A) the sale of gold reserves.
B) borrowing from the International Monetary Fund.
C) an increase in the money supply.
D) an increase in taxes.
E) selling bonds in the international capital market.
58) What was the result of President Lyndon B. Johnson’s attempts to finance his welfare
programs?
A) increased exports
B) a rise in price inflation
C) increased taxes
D) a positive trade balance
E) an increase in the value of the dollar
59) What action did President Nixon take to enable devaluation of the dollar during the increase in
U.S. inflation in 1971?
A) The IMF member countries would adopt the gold standard to fix exchange rates.
B) The United States would no longer support the World Bank.
C) A new 15 percent tax would be charged on U.S. exports.
D) The dollar would no longer be convertible into gold.
E) German deutsche marks would be the new reference currency.
60) A potential downfall of the Bretton Woods system was that it would not work if
A) the currency of choice, the U.S. dollar, was under speculative attack.
B) only one form of currency was used as the basis for exchange.
C) gold was valued higher than the dollar.
D) at least ten nations failed to agree to the system.
E) services were not included in the agreement.
61) In January 1976, the ________ revised the International Monetary Fund’s Articles of
Agreement to reflect the new reality of floating exchange rates.
A) Jamaica agreement
B) Bretton Woods agreement
C) Marshall Plan
D) General Agreement on Tariffs and Trade
E) Plaza Accord
62) What was abandoned per the Jamaica agreement of 1976?
A) floating exchange rate system
B) U.S. dollar as the reference currency
C) gold as a reserve asset
D) new membership to the International Monetary Fund
E) granting International Monetary Fund loans to less developed countries
63) How was the global monetary system affected by major events in the 1970s, including the
OPEC oil crisis in 1971 and the loss of confidence in the U.S. dollar in the late 1970s?
A) The value of the U.S. dollar stabilized.
B) Exchange rates become much more volatile.
C) Exchange rates become more predictable.
D) The fixed rate system was adopted to calculate exchange rates.
E) The European Monetary System as an institution has gained more prominence.
64) One reason for the rapid rise in the value of the dollar between 1980 and 1985 despite a large
trade deficit was due to
A) political stability in all other parts of the world.
B) heavy capital outflows from the United States.
C) low real interest rates in the United States.
D) slow economic growth in the developed countries of Europe.
E) increasing exports against decreasing imports in the United States.
65) The fall in the value of the U.S. dollar between 1985 and 1988 was caused by
A) economic growth in the developed countries of Europe.
B) a fall in prices of exported U.S. goods.
C) a trade surplus in the United States during the previous years.
D) a combination of government intervention and market forces.
E) the protectionism measures adopted by European countries.
66) Under the Plaza Accord of 1985, the Group of Five major industrial countries concluded that it
would be desirable if
A) the countries returned to a system of fixed exchange rates.
B) the participating members reverted to the gold standard.
C) the United States adopted protectionism to improve its trade balance.
D) most major currencies appreciated via the U.S. dollar.
E) governments did not regulate the buying and selling of currency.
67) From mid-2008 through early 2009, the dollar’s value moderately increased against major
currencies, despite the fact that the American economy was suffering from a serious financial
crisis. What caused this phenomenon?
A) High real interest rates in the United States compared to any other developed region in the
world sparked an inflow of funds into the country.
B) U.S. assets were characterized by a high-risk, high-return payoff which prompted foreign
investors to park their funds.
C) Foreign investors were excited at the possibility of high returns following the government
bail-out of financial institutions.
D) Foreign investors put their money in low-risk U.S. assets such as low-yielding U.S. government
bonds.
E) Foreign investors saw opportunities in the United States as the level of indebtedness had begun
declining.
68) The foreign exchange market is sometimes referred to as a dirty-float system because
A) of the frequency of government intervention.
B) it doesn’t account for developing economies.
C) it allows for greater monetary discipline.
D) it lacks spot exchange activity.
E) it reflects a planned economy.
69) One argument for a fixed exchange rate system is that
A) governments can contract their money supply without worrying about the need to maintain
parity.
B) trade balance adjustments do not require the intervention of the International Monetary Fund.
C) it ensures that governments do not expand the monetary supply too rapidly, thus causing high
price inflation.
D) speculations in exchange rates boost exports and reduce imports.
E) each country should be allowed to choose its own inflation rate.
70) What is the effect of a monetary contraction in a fixed exchange rate system?
A) It forecasts low interest rates.
B) It increases the demand for money.
C) It puts downward pressure on a fixed exchange rate.
D) It leads to an inflow of money from abroad.
E) It can lead to high price inflation.
71) A newly independent Eastern European nation wants to adopt a floating exchange rate system
in order to restore monetary control to its government. Using the monetary autonomy argument,
how do this country’s ministers justify establishing this system?
A) Each country should be allowed to choose its own inflation rate.
B) Speculation in exchange rates dampens the growth of international trade and investment.
C) Unpredictability of exchange rate movements makes business planning difficult.
D) Variable exchange rates are more receptive to a trade balance.
E) Trade deficits are determined by the balance between savings and investment in a country, not
by the external value of its currency.
72) Following the global financial crisis in 2008–2009, the economy of Greece fell apart and has
struggled to regain strength. What is one reason for the demise of the Greek economy?
A) closing borders to trade in 2008
B) new trade agreement with the United States
C) a lack of entrepreneurial spirit
D) adoption of the euro in 2001
E) a dynamic trade program with France
73) A country in South America is adversely affected by trade deficits and the government wants
to move to a floating exchange rate system to help adjust trade imbalances. However, a political
group is opposing this. As critics of floating exchange rates, they claim that trade deficits are
determined by the
A) balance between savings and investment in a country.
B) external value of the currency of a country.
C) exchange rates of other currencies.
D) valuations made by International Monetary Fund and the World Bank.
E) mechanism of competitive currency devaluation.
74) A country that has an exchange rate system under which its exchange rate is allowed to
fluctuate against other currencies within a target zone is using a(n) ________ system.
A) free float
B) fixed peg
C) adjustable peg
D) pure float
E) capital float
75) The cabinet members agreed that it would be best to have the value of their island nation’s
currency follow that of the U.S. dollar. This is an example of a ________ exchange rate regime.
A) target
B) pegged
C) spot
D) command
E) free float
76) One attribute of a pegged exchange rate is that it leads to
A) a planned economy.
B) low inflation.
C) greater supply and demand.
D) a lack of monetary discipline.
E) a quick recession.
77) A developing country might want to commit itself to converting its domestic currency on
demand into another currency at a fixed exchange rate. To do this, it should implement a(n)
A) free-float exchange rate system.
B) clean-float exchange rate system.
C) pure-float exchange rate system.
D) currency board.
E) gold standard.
78) How does a country that introduces a currency board make its commitment to converting its
domestic currency on demand into another currency at a fixed exchange rate credible?
A) borrowing funds from the International Monetary Fund and the World Bank
B) maintaining a trade surplus with foreign countries
C) holding foreign currency reserves equal at the fixed exchange rate to at least 100 percent of the
domestic currency issued
D) importing more goods from foreign countries than it exports
E) printing foreign currencies
79) How are interest rates typically affected by a strict currency board system?
A) Interest rates adjust automatically based on the supply and demand of domestic currency.
B) Developing countries receive lower interest rates.
C) Interest rates are based on the gold standard and remain steady.
D) Developed countries are required to pay higher interest rates.
E) The government is allowed to print money when necessary and charge interest for its use.