Reference no: EM131035493

1. When on the gold standard, to maintain its mint parity value and the value of its currency a nation must condition its money stock on the level of gold reserves it has.

a. True
b. False

2. After WWI, the United Kingdom returned to a gold standard at prewar parity, but this turned out to overvalue the pound and as a result the high fixed exchange rate transmitted the effects of a trade deficit directly into the U.K economy in the form of a recession.

a. True
b. False

3. If the actual exchange rate for a currency varied above its mint parity value, gold would flow out and be traded for a profit until the mint parity value was re-established. However, the cost of transporting gold limited this effect so that currency values tended to stay within a range or band centered on their mint parity values.

a. True
b. False

4. Under the gold standard, short-run volatility in gold and money stocks caused even more short-run price volatility than we had in the following non-gold standard exchange rate systems.

a. True
b. False

5. Under the Bretton Woods agreement in which Keynes played a role, exchange rates were pegged and relatively hard to adjust and this mechanism was written into the articles of the IMF, but flexible exchange rates became the new exchange rate system under the Jamaica Accords in 1976 when the IMF constitution was amended.

a. True
b. False

6. One major decision a nation must answer is whether its monetary order will require that fiat money or some type of commodity-backed money be used to make transactions.

a. True
b. False

7. A dirty or managed float emerged after the Louvre Accord in 1987, but that doesn't characterize the freely flexible exchange rate system that exists today.

a. True
b. False

8. Since most countries that peg their currency using the dollar as the peg, there is no difference between a currency peg and dollarization.

a. True
b. False

9. Mint parity values under the gold standard involved fixed exchange rates and did not require a central bank, but this did not prevent expansionary domestic monetary policy from happening during a recession.

a. True
b. False

10. The Smithsonian agreement involved nations buying and selling currencies to maintain currency values within a currency value band or range of 2.25 percent (known as the snake - the currency values, in the tunnel - the band), but only lasted from about 1971 to 1973 and was followed by a de facto flexible exchange rate system.

a. True
b. False