Chapter 14 X BALANCE-OF-PAYMENTS ADJUSTMENTS UNDER FIXED EXCHANGE RATES

Chapter 14 X BALANCE-OF-PAYMENTS ADJUSTMENTS UNDER FIXED EXCHANGE RATES
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Unformatted text preview: CHAPTER 14 BALANCE-OF-PAYMENTS ADJUSTMENTS UNDER FIXED EXCHANGE RATES MULTIPLE-CHOICE QUESTIONS 1. Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium? Variations in: a. Domestic income b. Foreign prices c. Domestic prices d. Foreign par values 2. The balance-of-payments adjustment mechanism developed during the 1700s by the English economist David Hume is the: a. Income-adjustment mechanism b. Flexible-exchange-rate-adjustment mechanism c. Price-adjustment mechanism d. Rank-reserve-adjustment mechanism 3. Which chain of events would promote payments equilibrium for a surplus nation, according to the price- adjustment mechanism? a. Increasing money supply—increasing domestic prices—rising imports—falling exports b. Increasing money supply—falling domestic prices—rising imports—falling exports c. Decreasing money supply—increasing domestic prices—falling imports—rising exports d. Decreasing money supply—decreasing domestic prices—falling imports—rising exports 4. Which chain of events would promote payments equilibrium for a deficit nation, according to the price- adjustment mechanism? a. Increasing money supply—increasing domestic prices—rising imports—falling exports b. Increasing money supply—falling domestic prices—rising imports—falling exports c. Decreasing money supply—increasing domestic prices—falling imports—rising exports d. Decreasing money supply—decreasing domestic prices—falling imports—rising exports 227 228 Test Bank for International Economics, 9e 5. During the gold standard era, central bankers agreed to react positively to international gold flows so as to reinforce the automatic adjustment mechanism. Which of the following best represents the above statement? a. Income-adjustment mechanism b. Price-adjustment mechanism c. Rules of the game d. Discretionary fiscal policy 6. During the gold standard era, the “rules of the game” suggested that: a. Surplus countries should increase their money supplies b. Deficit countries should increase their money supplies c. Surplus and deficit countries should increase their money supplies d. Surplus and deficit countries should decrease their money supplies 7. Which of the following balance-of-payments adjustment mechanisms is most closely related to the quantity theory of money? a. Income-adjustment mechanism b. Price-adjustment mechanism c. Interest-rate-adjustment mechanism d. Output-adjustment mechanism 8. Under the gold standard, a surplus nation facing a gold inflow and an increase in its money supply would also experience a: a. Rise in its interest rate and a short-term capital inflow b. Rise in its interest rate and a short-term capital outflow c. Fall in its interest rate and a short-term capital inflow d. Fall in its interest rate and a short-term capital outflow 9. Under the gold standard, a deficit nation facing a gold outflow and a decrease in its money supply would also experience a:...
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