ECO 410 Week 3 Quiz 2 Chapter 3 and 4 – Strayer

ECO 410 Week 3 Quiz – Strayer (All Possible Questions With Answers)

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Chapter 3

The International Monetary System

Multiple Choice

1) Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was:
A) £4.8665/$.
B) £0.2055/$.
C) always changing because the price of gold was always changing.
D) unknown because there is not enough information to answer this question.

2) World War I caused the suspension of the gold standard for fixed international exchange rates because the war:
A) cost too much money.
B) interrupted the free movement of gold.
C) lasted too long.
D) used gold as the main ingredient in armament plating.

3) The post WWII international monetary agreement that was developed in 1944 is known as the:
A) United Nations.
B) League of Nations.
C) Yalta Agreement.
D) Bretton Woods Agreement.

4) Another name for the International Bank for Reconstruction and Development is:
A) the Recon Bank.
B) the European Monetary System.
C) the Marshall Plan.
D) the World Bank.

5) The International Monetary Fund (IMF):
A) in recent years has provided large loans to Russia, South Korea, and Brazil.
B) was created as a result of the Bretton Woods Agreement.
C) aids countries with balance of payment and exchange rate problems.
D) is all of the above.

6) Which of the following led to the eventual demise of the fixed currency exchange rate regime worked out at Bretton Woods?
A) widely divergent national monetary and fiscal policies among member nations
B) differential rates of inflation across member nations
C) several unexpected economic shocks to member nations
D) all of the above

7) Which of the following statements is NOT true?
A) The Gold Standard Era was characterized by growing openness in trade, but limited capital mobility.
B) The time period between world wars 1 and 2 (the inter war Years) witnessed significant reductions in trade barriers and a rapid acceleration in international trade.
C) The Bretton Woods Era (post WWII) realized the increasing benefits of open economies. Furthermore, trade was increasingly dominated by capital.
D) In fact, all of the above statements are true.

True/False

1) Under the terms of Bretton Woods, countries tried to maintain the value of their currencies to within 1% of a hybrid security made up of the U.S. dollar, British pound, and Japanese yen.

2) Members of the International Monetary Fund may settle transactions among themselves by transferring Special Drawing Rights (SDRs).

3) Today, the United States has been ejected from the International Monetary Fund for refusal to pay annual dues.

4) From the time of its creation through July 2012, the euro peaked versus the USD in April 2008 at around $1.60/€

Essay

1) Most Western nations were on the gold standard for currency exchange rates from 1876 until 1914. Today we have several different exchange rate regimes in use, but most larger economy nations have freely floating exchange rates today and are not obligated to convert their currency into a predetermined amount of gold on demand. Currently several parties still call for the “good old days” and a return to the gold standard. Develop an argument as to why this is a good idea.

Multiple Choice

1) Since 2009 the IMF’s exchange rate regime classification system uses a “de facto classification” methodology. Under this system, a country that has given up their own sovereignty over monetary
policy is considered to have:
A) a residual agreement.
B) hard pegs.
C) soft pegs.
D) floating arrangements.

2) Since 2009 the IMF’s exchange rate regime classification system uses a “de facto classification” methodology. Under this system, countries with “fixed exchange rates” are considered to have:
A) a residual agreement.
B) soft pegs.
C) hard pegs.
D) floating arrangements.

3) A small economy country whose GDP is heavily dependent on trade with the United States could use a(n) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate.
A) pegged exchange rate with the United States
B) pegged exchange rate with the Euro
C) independent floating
D) managed float

4) Since 2009 the IMF’s exchange rate regime classification system uses a “de facto classification” methodology. Under this system, currencies that are predominantly market-driven are considered to be:
A) soft pegs.
B) hard pegs.
C) floating arrangements.
D) a residual agreement.

True/False

1) The euro is an example of a rigidly fixed system, acting as a single currency for its member countries. However, the euro itself is an independently floating currency against all other currencies.

2) Although the contemporary international monetary system is typically referred to as a “floating regime,” it is clearly not the case for the majority of the world’s nations.

Essay

1) The mobility of international capital flows is causing emerging market nations to choose between a free-floating currency exchange regime and a currency board (or taken to the limit, dollarization). Describe how each of the regimes would work and identify at least two likely economic results for each regime.

Multiple Choice

1) Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?
A) Fixed rates provide stability in international prices for the conduct of trade.
B) Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate.
C) Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies.
D) Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses.

2) Which of the following is NOT an attribute of the “ideal” currency?
A) monetary independence
B) full financial integration
C) exchange rate stability
D) All are attributes of an ideal currency.

3) The authors discuss the concept of the “Impossible Trinity” or the inability to achieve simultaneously the goals of exchange rate stability, full financial integration, and monetary independence. If a country chooses to have a pure float exchange rate regime, which two of the three goals is a country most able to achieve?
A) monetary independence and exchange rate stability
B) exchange rate stability and full financial integration
C) full financial integration and monetary independence
D) A country cannot attain any of the exchange rate goals with a pure float exchange rate regime.

True/False

1) Based on the premise that, other things equal, countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade.

2) If exchange rates were fixed, investors and traders would be relatively certain about the current and near future exchange value of each currency.

Multiple Choice

1) Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)?
A) National birthrates must be at 2.0 or lower per person.
B) The fiscal deficit should be no more than 3% of GDP.
C) Nominal inflation should be no more than 1.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year.
D) Government debt should be no more than 60% of GDP.

2) According to the authors, what is the single most important mandate of the European Central Bank?
A) Promote international trade for countries within the European Union.
B) Price, in euros, all products for sale in the European Union.
C) Promote price stability within the European Union.
D) Establish an EMU trade surplus with the United States.

3) Which of the following is a way in which the euro affects markets?
A) Countries within the Euro zone enjoy cheaper transaction costs.
B) Currency risks and costs related to exchange rate uncertainty are reduced.
C) Consumers and business enjoy price transparency and increased price-based competition.
D) all of the above

4) For the three years from early 2002 to early 2005, the euro maintained a strong and steady rise in value against the U.S. dollar (USD). After a brief respite in 2005, the euro continued its climb against the USD into 2008. Which of the following were NOT a contributing factor in the assent of the euro and the decline in the dollar?
A) severe U.S. balance of payments deficits
B) a general weakening of the dollar after the attacks of September 11, 2001
C) large U.S. balance of payment surpluses
D) All of the above were contributing factors.

5) The countries that use the euro as their currency have:
A) agreed to use a single currency (exchange rate stability), allow the free movement of capital in and out of their economies (financial integration), but give up individual control of their own money supply (monetary independence).
B) gained control over their own money supply (monetary independence), allowed the free movement of capital in and out of their economies (financial integration), but give up exchange rate stability.
C) agreed to use a single currency (exchange rate stability), allow individual control of their own money supply (monetary independence), but give up the free movement of capital in and out of their economies (financial integration).
D) none of the above

True/False

1) The Euro currency is fixed against other currencies on the international currency exchange markets, but allows member country currencies to float against each other.

2) The European Central Bank is a strong and independent central bank that has completely replaced the individual central banks of the countries that use the euro as their currency.

3) The members of the EU do have relative freedom to set their own fiscal policies— government spending, taxation, and the creation of government surpluses or deficits. They are expected to keep deficit spending within limits.

Multiple Choice

1) Beginning in 1991 Argentina conducted its monetary policy through a currency board. In January 2002, Argentina abandoned the currency board and allowed its currency to float against other currencies. The country took this step because:
A) the Argentine Peso had grown too strong against major trading powers thus the currency board policies were hurting the domestic economy.
B) the United States required the action as a prerequisite to finalizing a free trade zone with all of North, South, and Central America.
C) the Argentine government lost the ability to maintain the pegged relationship as in fact investors and traders perceived a lack of equality between the Argentine Peso and the U.S. dollar.
D) all of the above

2) In January 2002, the Argentine Peso changed in value from Peso1.00/$ to Peso1.40/$, thus, the Argentine Peso ________ against the U.S. dollar.
A) strengthened
B) weakened
C) remained neutral
D) all of the above

3) In January 2000 Ecuador officially replaced its national currency, the Ecuadorian sucre, with the U.S. dollar. This practice is known as:
A) bi-currencyism.
B) sucrerization.
C) a Yankee bailout.
D) dollarization.

4) You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the U.S. financial and product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States?
A) dollarization
B) an exchange rate pegged to the U.S. dollar
C) an exchange rate with a fixed price per ounce of gold
D) an internationally floating exchange rate

5) Which of the following is NOT an argument against dollarization?
A) Dollarization causes a loss of sovereignty over domestic monetary policy.
B) Dollarization removes currency volatility against the dollar.
C) Dollarization causes the country to lose the power of seignorage.
D) The central bank of the dollarized country loses the role of lender of last resort.

6) The ability of a country to profit from its ability to print money is known as:
A) profiteering.
B) dollarization.
C) seignorage.
D) inflation.

7) Which of the following factors make it difficult for emerging market economies to choose a specific currency regime?
A) weak fiscal, financial, and monetary institutions
B) the tendency for commerce to allow currency substitution and the denomination of liabilities in dollars
C) the emerging market’s vulnerability to sudden stoppages of outside capital flows
D) all of the above

True/False

1) A currency board exists when a country’s central bank commits to back its money supply entirely with foreign reserves at all times.

2) Dollarization is a common solution for countries suffering from currency revaluation.

3) By and large, high capital mobility is forcing emerging market nations to choose between the two extremes of a free floating regime or an exchange rate regime of dollarization of a currency board.

Multiple Choice

1) Of the following, which is NOT a trade-off that must be dealt with in any exchange rate regime?
A) cooperation vs independence
B) rules vs discretionary action
C) dollars vs pounds
D) All of the above are rate regime trade-offs.

True/False

1) All exchange rate regimes must deal with the trade-off between rules and discretion as well as between cooperation and independence.

2) Regime structures like the gold standard required no cooperative policies among countries, only the assurance that all would abide by the “rules of the game.”

3) Bretton Woods required less in the way of cooperation among countries than did the gold standard.

Chapter 4 The Balance of Payments

Multiple Choice

1) Which of the following is NOT a major subaccount of the Balance of Payments?
A) the financial account
B) the accounts payable
C) the capital account
D) the current account

2) Which of the following international transactions would NOT be counted as a balance of payments (BOP) transaction?
A) An American tourist purchases cheese in Milwaukee, Wisconsin.
B) The U.S. subsidiary of a British firm pays profits (dividends) back to its parent firm in London.
C) A Canadian lumber baron purchases a U.S. corporate bond through an investment broker in
Seattle.
D) All of the above are considered BOP transactions.

3) The balance of payments as applied to a course in international finance may be defined as:
A) the amount still owed by an exporting firm after making an initial down payment.
B) the amount still owed by governments to the International Monetary Fund.
C) the measurement of all international economic transactions between the residents of a country and foreign residents.
D) the amount of a country’s merchandise trade deficit or surplus.

4) Balance of payment (BOP) data may be important for any of the following reasons:
A) BOP data helps to forecast a country’s market potential, especially in the short run.
B) The BOP is an important indicator of a country’s foreign exchange rate.
C) Changes in a country’s BOP may signal a change in controls over payment of dividends and interest.
D) all of the choices provided above

5) A country experiencing a serious BOP ________ is more likely to ________ exports than otherwise.
A) surplus; contract
B) surplus; expand
C) deficit; expand
D) none of the above

6) Which of the following would NOT be considered a typical BOP transaction?
A) Toyota U.S.A. is a U.S. distributor of automobiles manufactured in Japan by its parent company.
B) The U.S. subsidiary of European financial giant, Credit Suisse, pays dividends to its parent in Zurich.
C) A U.S. tourist purchases gifts at a museum in London.
D) All are example of BOP transactions.

True/False

1) When the world went to a system of floating exchange rates, the Balance of Payments became a relic of a system of fixed exchange rates and is no longer watched by serious economic groups.

2) Changes in the BOP may predict the imposition or removal of foreign exchange controls.

3) A country experiencing a serious trade deficit is not as likely to expand imports as it would
be if running a surplus.

Multiple Choice

1) Which of the following is NOT a part of the Current Account of BOP?
A) net export/import of goods
B) balance of trade
C) net portfolio investment
D) net export/import of services

2) Which of the following is NOT part of the Financial Account of the BOP?
A) net foreign direct investment
B) net import/export of services
C) net portfolio investment
D) other Financial items

3) Which of the following is NOT an item to be considered in BOP calculations?
A) A foreign resident purchases a U.S. Treasury Bill.
B) A U.S.-based firm manages the development of an oil field in Kazakhstan.
C) A consumer buys a VCR made in Korea from a Florida Wal-Mart store.
D) A U.S. citizen living in Minnesota travels to Winnipeg, Canada, and buys a case of LaBatt’s Canadian beer.

4) The balance of payments:
A) determines the eligibility of countries for IMF aid.
B) adds up the value of all assets and liabilities of a country on a specific date.
C) records all international transactions for a country over a period of time.
D) all of the above

5) An American tourist purchases a leather jacket while in Italy. Which of the following statements is true?
A) The leather purchase would be considered an import for the U.S. BOP.
B) This transaction would be properly accounted for in the Current Account of the U.S. BOP.
C) The leather purchase is considered an import of a good, and thus, considered part of the balance of trade as well.
D) All of these statements are true.

True/False

1) The authors identify a tip for understanding BOP accounting. They recommend that you “follow the cash flow.”

2) The BOP must be in balance, but the current account need not be.

3) Expenditures by U.S. tourists in foreign countries for foreign goods or services are factored into BOP calculations.

4) Like a balance sheet, the Balance of Payments adds up the value of all assets and liabilities
of a country on a specific date.

Essay

1) What is a country’s balance of (merchandise) trade, and why is it so widely reported in the financial and popular press?

2) What is the Official Reserves Account (ORA), and why is it more important for countries under a fixed exchange rate regime than for ones under a floating exchange rate regime?

Multiple Choice

1) Which of the following is NOT part of the balance of payments account?
A) the current account
B) the financial/capital account
C) the official reserves account
D) All of the above are BOP accounts.

2) The ________ includes all international economic transactions with income or payment flows occurring within the year.
A) capital account
B) current account
C) financial account
D) IMF account

3) If your company were to import and export textiles, the transactions would be recorded in the current account subcategory of:
A) services trade.
B) income trade.
C) goods trade.
D) current transfers.

4) The travel services provided to international travelers by United Airlines would be recorded in the current account subcategory of:
A) services trade.
B) income trade.
C) goods trade.
D) current transfers.

5) Anaconda Copper Inc. created a subsidiary in Chile last year to mine copper ore. The proportion of net income paid back to the parent company as a dividend would be recorded in the current account subcategory of:
A) services trade.
B) income trade.
C) goods trade.
D) current transfers.

6) The subcategory that typically dominates the current account is:
A) goods (merchandise) trade.
B) services trade.
C) income trade.
D) transfer accounts.

7) In 2010 the United States posted a current account deficit of -$471 billion. The bulk of the negative value came from:
A) a net transfer deficit.
B) an income balance deficit.
C) a goods trade deficit.
D) an income trade deficit.

8) Over the last two decades the surplus on U.S. services trade has typically been ________ the deficit on U.S. goods trade.
A) greater than
B) equal to
C) less than
D) The relationship is constantly shifting from greater than to less than.

True/False

1) Because current and financial/capital account balances use double-entry bookkeeping it is unusual to find serious discrepancies in the debits and credits.

2) In general, as a country’s income increases, so does the demand for imports.

3) For at least the last decade, the United States has consistently run a surplus in services trade income.

4) Expenditures by U.S. students abroad and foreign students pursuing studies in the United States would be considered a services trade and part of the U.S. current account.

Multiple Choice

1) The ________ of the balance of payments measures all international economic transactions of financial assets.
A) current account
B) merchandise trade account
C) services account
D) capital and financial accounts

2) The financial account consists COMPLETELY of which four components?
A) stock investment, bond investment, derivative investment, and mutual fund investment
B) direct investment, stock investment, net financial derivatives, and bond investment
C) direct investment, portfolio investment, net financial derivatives, and other asset investment
D) mutual fund investment, portfolio investment, derivative investment, and stock investment

3) When categorizing investments for the financial account component of the balance of payments the ________ is an investment where the investor has no control whereas the ________ is an investment where the investor has control over the asset.
A) direct investment; portfolio investment
B) direct investment; indirect investment
C) portfolio investment; indirect investment
D) portfolio investment; direct investment

4) In general there is consensus that ________ should be free, but there is no such consensus that ________ should be free.
A) international investment; international goods trade
B) international investment; international trade
C) international trade; international goods trade
D) international trade; international investment

5) The two major concerns about foreign direct investment are:
A) national defense and taxes.
B) who controls the assets and who receives the profits.
C) who receives the profits and taxes.
D) who pays the taxes and who receives the taxes.

6) Portfolio investment is capital invested in activities that are ________ rather than made for ________.
A) short term; the long term
B) long term; profit
C) profit motivated; control
D) control motivated; profit

7) Under an international regime of fixed exchange rates, countries with a BOP ________ should consider ________ their currency while countries with a BOP ________ should consider ________ their currency.
A) deficit, revaluing; surplus, revaluing
B) deficit, devaluing; surplus, devaluing
C) surplus, devaluing; deficit, revaluing
D) surplus, revaluing; deficit, devaluing

8) Consider the following: A foreign automobile company builds a manufacturing plant in Tennessee and European investors buy U.S. Treasury Bonds.
A) Both activities would be considered direct investment.
B) Both activities would be considered portfolio investment.
C) The auto manufacturer in engaging in portfolio investment, and the European investors are engaged in direct investing.
D) The auto manufacturer in engaging in direct investment, and the European investors are engaged in portfolio investing.

True/False

1) International debt security purchases and sales are defined as portfolio investments for financial account purposes because by definition debt securities do not provide the buyer with ownership or control.

2) Significant amounts of United States Treasury issues are purchased by foreign investors, therefore the U.S. must earn foreign currency to repay this debt.

3) In the United States and most developed countries, the current account and the combined financial/capital accounts tend to be inversely related in that when one is positive, the other tends to be negative.

Multiple Choice

1) China is currently experiencing a surplus in its current account and its capital/financial accounts. Which of the following is NOT a contributing factor for this unusual situation?
A) The exceptional growth in the Chinese economy contributes to the current account surplus.
B) The positive prospects for China’s continued growth contribute to the capital/financial account surplus.
C) China’s inevitable acquisition of Taiwan is driving the market for Chinese investment.
D) All of the above are contributing factors for China’s twins surpluses.

2) If China wished to reduce their accumulation of foreign exchange reserves they could:
A) allow their currency, the yuan, to float freely in the market place.
B) reduce their current account surplus by importing more goods than they export.
C) undertake both of the activities identified in choices A and B.
D) dig a big hole and bury the reserves.

True/False

1) The biggest problem that China faces in maintaining a stable value for their currency, the yuan, is their lack of foreign exchange reserves.

2) As of year-end 2010, the United States still held the world’s largest foreign exchange reserve, but the total was rapidly being approached by China.

3) China’s current political plan includes reducing their foreign exchange reserve balance by allowing the yuan to float freely and by switching their goods balance from one of a net surplus to a net deficit.

4.6 The Balance of Payments in Total

Multiple Choice

1) The largest single component of the United States current account is:
A) current transfers.
B) income payments and receipts.
C) goods (merchandise) imports and exports.
D) services imports and exports.

2) Which of the following statements about the balance of payments is NOT true?
A) The BOP is the summary statement of all international transactions between one country and all other countries.
B) The BOP is a flow statement, summarizing all international transactions that occur across the geographic borders over a period of time, typically a year.
C) Although the BOP must always balance in theory, in practice there are substantial imbalances as a result of statistical errors and misreporting of current account and financial account flows.
D) All of the above are true.

True/False

1) An excess of merchandise exports over merchandise imports results in a balance of trade deficit.

2) The BOP should always balance.

3) The transition to floating exchange rate regimes in the 1970s (described in Chapter 3) changed the focus from the total BOP to its various subaccount like the current and financial account balances.

4.7 The Balance of Payments Interaction with Key Macroeconomic Variables

Multiple Choice

1) Use the following terms for this question:
C = consumption
I = capital investment spending
G = government spending
X = exports of goods and services
M = imports of goods and services
BOP = balance of payments
GDP = gross domestic product
NPV = net present value
INF = inflation
R = real rate of return

The static equation for the nations GDP is:
A) GDP = C + I + G + (X + M ) × INF
B) GDP = C + I + G + X + M
C) GDP = C + I + G + X – M
D) GDP = C + I + X – M + R

2) Imports have the potential to lower a country’s inflation rate because of each of the following EXCEPT:
A) the import of lower priced goods limits what domestic competitors can charge for goods.
B) the import of lower priced services limits what domestic competitors can charge for services.
C) the higher prices of foreign goods spurs domestic competitors to cut prices.
D) all of the above

3) Under a fixed exchange rate system, the government bears the responsibility to ensure that the BOP is near zero. If the sum of the current and capital accounts do not approximate zero, the government is expected to intervene in the foreign exchange market by buying or selling official foreign exchange reserves. If the sum of the first two accounts is GREATER THAN ZERO, a ________ demand for the domestic currency exists in the world. To preserve the fixed exchange rate, the government must then intervene in the foreign exchange market and ________ domestic currency for foreign currencies or gold so as to bring the BOP back near zero.
A) surplus; sell
B) surplus; buy
C) deficit; sell
D) deficit; buy

4) Under a fixed exchange rate system, the government bears the responsibility to ensure that the BOP is near zero. If the sum of the current and capital accounts do not approximate zero, the government is expected to intervene in the foreign exchange market by buying or selling official foreign exchange reserves. If the sum of the first two accounts is LESS THAN ZERO, a ________ demand for the domestic currency exists in the world. To preserve the fixed exchange rate, the government must then intervene in the foreign exchange market and ________ domestic currency for foreign currencies or gold so as to bring the BOP back near zero.
A) surplus; sell
B) surplus; buy
C) deficit; sell
D) deficit; buy

True/False

1) An increase in GDP should lead to a decrease in imports.

2) The effect of an imbalance in the BOP is the same for countries on a fixed exchange rate regime as for those on a floating exchange rate regime.

3) Under a floating exchange rate system, the government bears the responsibility to ensure that the BOP is near zero.

4) A country with a managed float that wishes to WEAKEN its currency may choose to raise domestic interest rates to attract additional capital from abroad.

5) A country’s overall level of interest rates should have an impact on the financial account of the BOP. Relatively low real interest rates should normally stimulate an outflow of capital seeking higher interest rates in other country currencies.

6) Imports have the potential to lower a country’s inflation rate. In particular, imports of HIGHER-priced goods and services place a limit on what domestic competitors charge for comparable goods and services.

4.8 Trade Balances and Exchange Rates

Multiple Choice

1) Of the following, which is NOT a part of J-Curve adjustment path?
A) the currency contract period
B) the exchange rate pass-through period
C) the quantity adjustment period
D) Each of the above is part of the J-Curve adjustment path.

2) Which of the following is NOT likely to occur in the quantity adjustment phase of the J-Curve adjustment path?
A) Imports become relatively more expensive.
B) Exports become relatively less expensive.
C) The balance of trade gets worse.
D) All of the above are true.

True/False

1) When a currency is devalued the immediate impact may be an increase in a country’s trade deficit. However, this situation tends to correct itself in 2 to 5 weeks.

Comment: This situation tends to correct itself in 3 to 12 MONTHS or more.

4.9 Capital Mobility

Multiple Choice

1) The authors identify four distinct periods of capital mobility since 1860. Which do they term as a “period of global economic destruction”?
A) 1860 – 1914
B) 1914 – 1945
C) 1945 – 1971
D) 1971 – 2007

2) ________ is the cross-border purchase of assets that are then managed in a way that hides the movement of money and its ownership.
A) Capital flight
B) Capital mobility
C) Irrational exuberance
D) Money laundering

3) This was an era dominated by industrialized nation economies that were dependent on gold convertibility to maintain confidence in the system.
A) The Gold Standard, 1860-1914
B) The Interwar Years , 1914-1945
C) The Bretton Woods Era, 1945-1971
D) The Floating Era, 1971-1997

4) This dollar-based fixed exchange rate system gave rise to a long period of economic recovery and growing openness of both international trade and capital flows in and out of more and more countries.
A) The Gold Standard, 1860-1914
B) The Interwar Years , 1914-1945
C) The Bretton Woods Era, 1945-1971
D) The Floating Era, 1971-1997

5) An era of retrenchment, in which major economic powers returned to policies of isolationism and protectionism, restricting trade and nearly eliminating capital mobility.
A) The Gold Standard, 1860-1914
B) The Interwar Years , 1914-1945
C) The Bretton Woods Era, 1945-1971
D) The Floating Era, 1971-1997

6) A ________ is any restriction that limits or alters the rate or direction of capital movement into or out of a country.
A) capital budget
B) capital control
C) balance of trade deficit
D) balance of trade surplus

True/False

1) The Bretton Woods era realized a great expansion of international trade in goods and services.

Essay/Short Answer

1) Dutch Disease is a term applied to a problem in the 1970 whereby the Netherlands were experiencing massive and sudden inflows of capital from abroad. What was the cause of this sudden influx of capital, and what types of potential problems did it have for the Dutch or could it have for any small single resource country?