Which was a consequence of the US ending the post-World War II quasi-gold standard in the early 1970s? A. The GATT was replaced with the WTO. B. The World Bank stopped issuing loans to developing countries. C. Developing countries embraced austerity. D. It ushered in the end of fixed exchange rates and the start of floating exchange rates.

Which was a consequence of the US ending the post-World War II quasi-gold standard in the early 1970s? A. The GATT was replaced with the WTO. B. The World Bank stopped issuing loans to developing countries. C. Developing countries embraced austerity. D. It ushered in the end of fixed exchange rates and the start of floating exchange rates.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter22: International Finance

Section: Chapter Questions

Problem 6QP

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Under a system of flexible exchange rates, what will correct a deficit in a country's balance of payments? a. an appreciation in the nation's currency b. a decline in the nation’s domestic price level c. a depreciation in the nation's currency d. an increase in the nation’s inflation rate 2. Which of the following would supply Canadian dollars to the foreign exchange market? a. an increase in the number of Canadians going to Las Vegas over the holidays b. an increase in spending due to American tourists in Canada c. the sale of a Canadian corporation to a German investor d. the sale of wheat from Manitoba to a European bakery
Why does purchasing-power parity theory NOT hold at all times? Select one: a. because prices are different across countries b. because wages are higher in some countries and lower in others c. because some goods and services cannot be traded d. because countries use different currencies
It is often believed that the value of the currency of some countries are too low, which gives the firms in those countries an unfair competitive advantage. Econometric evidence indicates that relative PPP does not hold in the short-run, while it does hold in the long-run. a. What does this imply for countries with a fixed exchange rate that is 'unfairly low'? b. Can a country maintain an 'unfair' competitive advantage in the long-run by somehow manipulating its exchange rate? Explain. c. Assume the UK and the US are the only countries in the world. Explain what will happen in the long run to the pound and the nominal interest rate in the UK as a result of a decrease in the expected inflation rate in the UK..
Interest rate parity is ensured by Select one: a. The government b. Arbitrage c. None of the above d. The World Bank
Explain why you agree or disagree with the following statements:a. A country that grows faster than its major trading partners can expect the international value of its currency to depreciate.b. A nation whose interest rate is rising more rapidly than interest rates in other nations can expect the international value of its currency to appreciate.c. A country’s currency will appreciate if its inflation rate is less than that of the rest of the world.
Thinking about the collapse of the gold standard, is there a case for returning to a gold standard? Why and what is it? As far as the IMF, what opportunities might current IMF lending policies to developing nations create for international businesses? What threats might they create?
Suppose the theory of purchasing power parity (PPP) is true. If inflation is higher in Eurozone than in Australia, which of the following is TRUE? a.The nominal exchange rate, expressed in euros per Australian dollar, increases b.The nominal exchange rate, expressed in euros per Australian dollar, decreases c.The nominal exchange rate, expressed in euros per Australian dollar, does not change d.None of the other options
Which of the following measures would best rectify a deficit on a country's Balance of Payments Account? a. Revaluing the currency b. Relaxing exchange controls c. Deflationary fiscal policy d. Lowering tariff barriers
Donald Company, a manufacturing company based in San Juan City, Philippines, purchased raw materials from a foreigncompany denominated in foreign currency. Which of the following is correct? A. If the foreign currency appreciates, Jonald will recognize foreign exchange loss.B. If the foreign currency appreciates, Jonald will recognize foreign exchange gain.C. If the foreign currency depreciates, Jonald will recognize foreign exchange loss. D. Any gain or loss will be deferred until the date of settlement.
If purchasing power parity between two countries were to hold, does this mean that the law of one price must necessarily hold for each good? Explain why or why not and provide an example.
Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1% of Germany’s GDP; private savings is 20% of GDP; and physical investment is 18% of GDP. a. Based on the national saving and investment identity, what is the current account balance? b. If the government budget surplus falls to zero, how will this affect the current account balance?
What do you think is a better system – fixed exchange rate system or flexible? Why?