1. When the U.S.-England exchange rate changes, which of the following prices change?

A. the prices of U.S. products sold in England change

B. the price to an Englishman of traveling in the U.S. changes

C. the prices paid by an American for English stocks and bonds change

D. all of the above prices change

2. The Bretton Woods system prevailed:

A. from the end of World War II until the early 1970s

B. from the early 1970s up to the present

C. from the end of World War I until the early 1970s

D. in the period between the two World Wars

3. From the early 1970s up to the present, the international monetary system may be characterized as one in which:

A. an adjustable-peg exchange rate system is used by most industrial nations

B. most major currencies float against each other, but many smaller countries fix their exchange rate with a major trading partner

C. all countries have been permitting their currencies to float freely

D. most major currencies are fixed against each other, but are allowed to float against currencies of smaller and less-developed countries

4. The conference at Bretton Woods, New Hampshire in 1944 resulted in the establishment of:

A. the International Monetary Fund

B. the International Bank for Reconstruction and Development (the World Bank)

C. a system of exchange rates characterized as an "adjustable-peg system."

D. all of the above

5. In a system of fixed exchange rates, when a nation devalues its currency:

A. it lets the currency float freely

B. it raises the value of its currency when expressed in foreign currencies

C. the prices of foreign products imported into the country are increased

D. it does none of the above

6. In the Bretton Woods system, which currency served as the key currency?

A. the Euro

B. the Japanese yen

C. the U.S. dollar

D. the German mark

7. Suppose that governments are pegging the U.S. - England exchange rate at $1.50 per pound at a time in which the equilibrium exchange rate is $1.30 per pound. Then:

A. the British pound is undervalued

B. England will exhibit a surplus in her balance of trade

C. British exports are place at an artificial disadvantage relative to U.S. goods

D. all of the above are true

8. By holding exchange rates within a narrow band in the short run, the Bretton Woods system sought to:

A. prevent inflation

B. provide an adjustment mechanism for payments disequilibrium

C. promote international trade

D. do none of the above

9. The international monetary system that replaced Bretton Woods has been referred to as a floating exchange rate system. In reality, this applies to only about:

A. 15 percent of the world's currencies

B. 50 percent of the world's currencies

C. 70 percent of the world's currencies

D. 90 percent of the world's currencies

10. Approximately how many countries currenly peg their exchange rate to the U.S. dollar?

A. three countries

B. about 20 countries

C. about 120 countries

D. all countries in the world except the former Soviet bloc

11. The phenomenon of overshooting refers to the tendency for an increase in the money supply to:

A. lead to an increase in the nation's price level

B. cause a dramatic appreciation in the nation's currency on the foreign exchange market

C. lead to a greater short-term than long-term depreciation of the nation's currency

D. cause the long-run change in the equilibrium exchange rate to overshoot the short-term change

12. The phenomenon of overshooting is attributable to the fact that an increase in a nation's money supply:

A. ultimately but not immediately increases the nation's price level

B. initially but not ultimately reduces interest rates

C. initially but not ultimately increases the nation's price level

D. ultimately but not initially reduces interest rates

13. The "convergence criteria" established in the 1991 Maastricht Treaty include:

A. limiting budget deficits to not more than one percent of GDP

B. limiting the national debt to not more than 60 percent of GDP

C. limiting inflation to not more than 4 percentage points above the average of the three countries with the lowest inflation rates

D. all of the above

14. A strongly appreciating U.S. dollar acts to:

A. reduce the U.S. trade deficit

B. raise the U.S. inflation rate

C. benefit U.S. export and import-competing firms

D. do none of the above

Answers: 1D, 2A, 3B, 4D, 5C, 6C, 7C, 8C, 9B, 10B, 11C, 12B, 13B, 14D.