2. In a fixed-rate system central banks maintain currency values by
a) reducing the money supplies of nations with overvalued currencies
b) boosting the money supplies of nations with undervalued currencies
c) buying up overvalued currencies in the foreign exchange market
d) selling undervalued currencies in the foreign exchange market
e) any of the above

3. The Bretton Woods system
a) ended in 1971  b) ended in 1939 when World War II began
c) is currently the basis for the international monetary system
d) is currently in use only by the major industrial nations  e) none of the above

4. The current exchange rate system can best be characterized as a
a) free float   b) managed float   c) target-zone arrangement
d) fixed-rate system  e) hybrid system

5. Governments intervene in the foreign exchange markets for all of the following except to
a) earn foreign exchange    b) reduce economic uncertainty   c) improve the nation's export competitiveness
d) reduce inflation   e) all of the above are correct

6. Managed floats fall into which of the following categories of central bank intervention?
a) smoothing out daily fluctuations   b) leaning against the wind    c) unofficial pegging
d) all of the above  e) a and b only

7. The European Monetary System was best described as a
a) clean float  b) target-zone arrangement c) dirty float  d) managed float  e) none of the above

8. Under a fixed-rate system, which of the following four alternatives to devaluation is most likely to succeed?
a) foreign borrowing  b) austerity   c) wage and price controls   d) exchange controls  e) all are equally likely to succeed

9. A weak peso is most likely to cause  a) added employment and inflation in Mexico
b) less unemployment but more inflation in Mexico  c) more unemployment but less inflation in Mexico
d) less unemployment and less inflation in Mexico  e) none of the above

12. Calls for a new gold standard reflect
a) fundamental distrust of government's willingness to maintain the integrity of fiat money
b) the durability and desirability of gold   c) a fear of deflation   d) a and b only   e) none of the above

13. In order to boost the value of the DM relative to the dollar
a) the Fed should sell dollars for DM and the Bundesbank should buy DM with dollars
b) the Fed should sell dollars for DM and the Bundesbank should buy dollars with DM
c) the Fed should sell DM for dollars and the Bundesbank should sell dollars for DM
d) the Fed should sell DM for dollars and the Bundesbank should buy DM with dollars
e) c and d

15. Under a fixed-rate system, a country that followed policies that would lead to a higher rate of inflation than that experienced by its trading partners would  a) experience a balance-of-payments deficit as its goods became more expensive     b) see in increase in the supply of its currency on the foreign exchange markets
c) find its currency subject to upward pressure   d) all of the above   e) a and b

16. Under a fixed-rate system, a country that followed policies leading to a lower inflation rate than that experienced by its trading partners would    a) come under pressure to expand its money supply
b) restrict the growth of its money supply    c) experience a balance-of-payments deficit
d) be forced to buy its currency in the foreign exchange market   e) none of the above

17. The Bretton Woods system fell apart because  a) of the oil crisis   b) U.S. monetary policy was too expansionary
c) the United States ran a large trade deficit    d) b and c     e) none of the above

18. The gold standard for the dollar was dissolved in 1973 because
a) the U.S. printed too many dollars to maintain gold at $35/oz  b) some countries preferred to hold gold instead of dollars    c) high interest rates raised the cost of holding gold  d) all of the above  e) a and b only

19. The rising dollar in the early 1980s can be attributed to
a) high real interest rates in the United States
b) improved investment prospects in the United States
c) the growing U.S. budget deficit
d) all of the above
e) a and b only

20. The fall of the dollar beginning in 1985 can be attributed to
a) the growing U.S. budget deficit
b) the large U.S. trade deficit
c) rapid U.S. economic growth
d) the slowdown in U.S. economic growth relative to improved growth overseas
e) all of the above

answers( 1. 3. a 4 e 6 d 7 a 8. b 9 b  12. a 13. a 17. b 18.e  19. e  20. d)