CHAPTER 3
The International Monetary System
EASY (factual)
3.1 The ________ is an exchange rate system that is relatively free from central bank
and other government-type interventions.
a. managed float
b. clean float
c. dirty float
d. target-zone arrangement
3.2 When government intervention attempts to reduce for exporters and importers
the uncertainty caused by disruptive exchange rate changes for the short and
medium term, it is referred to as _________.
a. smoothing out daily fluctuations
b. leaning against the wind
c. unofficial pegging
d. a dirty float
3.3 Under a _________, countries adjust their national economic policies to maintain
their exchange rates within a specific margin around agreed-upon, fixed central
exchange rates.
a. managed float
b. ‘beggar-thy-neighbor” devaluation
c. dirty float
d. target-zone agreement
3.4 ________ is nonconvertible paper money backed only by faith in the monetary
authorities.
a. Specie
b. Fiat money
c. Seignorage
d. Par value
3.5 Under the classic gold standard, if prices began rising in the U.S.
a. the dollar value of the pound would rise
b. the dollar value of the pound would fall
c. the U.S. would begin running a balance of trade surplus
d. gold would flow out of the U.S. and the U.S. money supply would drop
3.6 The Bretton Woods system
a. ended in 1971
b. ended in 1939 when World War II began
c. is currently the basis for the international monetary system
d. is currently in use only by the major industrial nations
3.7 The current exchange rate system can best be characterized as a ___ system.
a. free float
b. managed float
c. target-zone arrangement
d. fixed-rate
e. hybrid
3.8 Managed floats fall into which of the following categories of central bank
intervention?
a. smoothing out daily fluctuations
b. leaning against the wind
c. unofficial pegging
d. all of the above
3.9 The European Monetary System is best described as a
a. clean float
b. target-zone arrangement
c. dirty float
d. managed float
3.9 A weak peso is most likely to cause
a. added employment and inflation in Mexico
b. less unemployment but more inflation in Mexico
c. more unemployment but less inflation in Mexico
d. less unemployment and less inflation in Mexico
3.10 The Bretton Woods system fell apart because
a. of the oil crisis
b. U.S. monetary policy was too expansionary
c. the United States ran a large trade deficit
d. the United States no longer supported a pegged gold standard
3.11 The gold standard was dissolved in 1973 because
a. the U.S. printed too many dollars to maintain gold at $35/oz
b. some countries preferred to hold gold instead of dollars
c. high interest rates raised the cost of holding gold
d. a and b only
3.12 The rising dollar in the early 1980s can be attributed to
a. high real interest rates in the United States
b. improved investment prospects in the United States
c. the growing U.S. budget deficit
d. a and b only
3.13 The fall of the dollar beginning in 1985 can be attributed to
a. the growing U.S. budget deficit
b. the large U.S. trade deficit
c. rapid U.S. economic growth
d. the slowdown in U.S. economic growth relative to growth overseas
