FpracticeAns - ECN 160B University of CA, Davis Department...

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ECN 160B Spring 2005 University of CA, Davis Department of Economics Practice Questions for Final Exam Non-mandatory 1. Multiple Choice Questions: 1. Why is the reserve center in the reserve currency fixed rate system asymmetric? A. The reserve center fixes its exchange rate against the reserve currency, and all other countries are subject to that rate. B. Other countries fix their exchange rate to the reserve currency, and there is no exchange rate left for the reserve center to fix. C. The center country has to intervene all the time and regulate the balance of payments. D. The center country never has to intervene and bears none of the burden of financing its balance of payments. E. Both B and D. Answer: E 2. Imperfect asset substitutability assumes that A. the returns on foreign and domestic currency bonds are the same. B. the returns on foreign and domestic currency are different. C. the returns on foreign and domestic currency are influenced by risk. D. Both B and C E. sterilized intervention proves to be unproductive. Answer: D 3. Benefit(s) of the gold standard include A. asymmetry. B. making real values of national monies more stable and predictable. C. limiting money creation. D. Both A and C. E. Both B and C. Answer: E 4. Under fixed exchange rate, in general, A. the domestic and foreign interest rates are equal, R = R*. B. R = R* + (Ee – E)/E. C. None of the above. D. E is equal to one. E. One of the above. Answer: A 5. Under fixed rates, which one of the following statements is the most accurate? A. Monetary policy can affect only output. B. Monetary policy can affect only employment. C. Monetary policy can affect only international reserves. D. Monetary policy can not affect international reserves.
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E. None of the above statements is true. Answer: C 6. Which one of the following statements is the most accurate? A. A devaluation occurs when the central bank lowers the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank raises E. B. A devaluation occurs when the central bank raises the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank lowers E. C. Devaluation occurs when the domestic currency price of foreign currency, E, is raised, and a revaluation occurs when E is lowered. D. A devaluation occurs when the central bank of the foreign country raises the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank of the foreign country lowers E. E. None of the above statements is true. Answer: B 7. Which one of the following statements is the most accurate? A. Depreciation is a rise in E when the exchange rate is fixed, and devaluation is a rise in E when the exchange rate floats. B. Depreciation is a decrease in E when the exchange rate floats, and devaluation is a rise
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FpracticeAns - ECN 160B University of CA, Davis Department...

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