Question : 19.8   The Case for Floating Exchange Rates 1) Advocates of floating : 1303675

 

 

19.8   The Case for Floating Exchange Rates

 

1) Advocates of floating rate suggested it is favorable for economies for all of the following reasons EXCEPT

A) it discourages attack from foreign exchange speculators because of the fact that exchange rate adjustment is immediate.

B) it helps stabilize the shock effect on unemployment in case of economic changes such as fall in export demand.

C) it automatically matches the domestic inflation with ongoing foreign inflation.

D) it gives every country the opportunity to guide its own monetary conditions at home.

E) it brings the LR exchange rate to the level predicted by PPP without government policy decisions.

 

 

2) Which of the following is NOT a result of a temporary fall in foreign demand on one country’s exports under floating exchange rate?

A) The DD curve shifts to the left due to reduction of aggregate demand.

B) The AA curve shifts downwards due to reduction of money supply.

C) a fall in aggregate output

D) depreciation in home country’s currency

E) a fall in the home interest rate

 

3) Which of the following is NOT a result of a permanent fall in foreign demand on one country’s exports under floating exchange rate?

A) The DD curve shifts to the left due to reduction of aggregate demand.

B) The AA curve shifts upwards due to the increased expected long-run exchange rate.

C) a reduction in output by a smaller degree compared to temporary fall in demand

D) depreciation in home country’s currency

E) a raised level of unemployment

 

 

4) Which one of the following is/are INCORRECT?

An argument against floating exchange rates is that

A) a fixed rate automatically prevents instability in the domestic money market from affecting the economy if shocks come from home domestic money market.

B) a fixed rate might become unpredictable, complicating economic planning.

C) a rise in money demand under a fixed exchange rate would have no effect on the exchange rate and output.

D) a fixed rate functions within the price-specie-flow mechanism and maintains a balance of payments equilibrium.

E) a fixed rate automatically prevents instability in the economy from output market shocks.

 

 

5) If central banks were no longer obliged to intervene in currency markets to fix exchange rates, governments would be able to use monetary policy to reach

A) internal balance.

B) external balance.

C) internal and external balance.

D) internal but not external balance.

E) external but not internal balance.

 

 

6) Advocates of flexible exchange rates claim that under flexible exchange rates

A) no country would be forced to import only inflation from abroad.

B) no country would be forced to import only deflation from abroad.

C) no country would be forced to import inflation and deflation from abroad.

D) flexible exchange rates are not able to halt importing inflation from abroad.

E) flexible exchange rates are not able to halt importing deflation from abroad.

 

7) Advocates of flexible exchange rates claim that under flexible exchange rates

A) the United States would now be able to set world monetary conditions all by itself.

B) Germany would no longer be able to set world monetary conditions all by itself.

C) the United Kingdom would no longer be able to set world monetary conditions all by itself.

D) the United States would no longer be able to set world monetary conditions all by itself.

E) Germany would now be able set world monetary conditions all by itself.

 

 

8) Advocates of flexible exchange rates claim that under flexible exchange rates

A) the United States would no longer have the same opportunity as other countries to influence its exchange rate against foreign currencies.

B) the United States would have the same opportunity as other countries to influence its exchange rate against foreign currencies.

C) the United Kingdom would not have the same opportunity as other countries to influence its exchange rate against foreign currencies.

D) Germany would not have the same opportunity as other countries to influence its exchange rate against foreign currencies.

E) China would have the same opportunity as other countries to influence its exchange rate against foreign currencies.

 

 

9) Some claim that the long and agonizing periods of speculation preceding exchange rate realignments would

A) not occur under fixed exchange rate regime.

B) not occur under floating.

C) become more severe under currency board.

D) become less severe under floating.

E) be prolonged under floating.

 

 

10) Advocates of floating rates pointed out that

A) removal of the obligation to peg currency values would restore monetary control to central banks.

B) imposing of the obligation to peg currency values would restore monetary control to central banks.

C) removing of the obligation to peg currency values would restore fiscal control.

D) imposing of the obligation to peg currency values would restore fiscal control.

E) imposing of the obligation to peg currency would restore monetary control to the consumer.