Chap028

Chap028 - Chapter 28 - Fixed or Flexible Exchange Rates?...

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Chapter 28 - Fixed or Flexible Exchange Rates? Chapter 28 Fixed or Flexible Exchange Rates? Multiple Choice Questions 1. The view that inflation in a country can lead to depreciation of the country's currency which in turn can cause further inflation is known as A . The vicious circle hypothesis b. The autonomous spending multiplier concept c. The purchasing power parity problem d. The exchange risk hypothesis. 2. Proponents of fixed exchange rates would find the most support for their position in which one of the following empirical results regarding the relationship between exchange rate variations and the volume of international trade? (Assume that the empirical tests adequately account for other factors that influence the volume of trade.) A . No discernible relationship between exchange rate variations and the volume of trade b. A negative relationship between exchange rate variations and the volume of trade c. A mildly positive relationship between exchange rate variations and the volume of trade d. A strongly positive relationship between exchange rate variations and the volume of trade 3. In view of the theory of optimum currency areas, a country would be a good candidate for membership in such an area if it had a __________ degree of factor mobility with other potential member countries of the currency area and if the country were a relatively __________ economy. a. Low; closed b. Low; open c. High; closed D . High; open 28-1
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Chapter 28 - Fixed or Flexible Exchange Rates? 4. A major advantage of the system of flexible exchange rates (as opposed to fixed exchange rates) is commonly thought to be a. The likelihood that external monetary shocks will not influence domestic national income under flexible exchange rates b. The strong possibility that the greater exchange rate risk under flexible rates will increase
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This note was uploaded on 11/27/2009 for the course ECON 421 taught by Professor Macphee,c during the Spring '08 term at UNL.

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Chap028 - Chapter 28 - Fixed or Flexible Exchange Rates?...

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