Tackle the Test: Multiple-Choice Questions

1. Question

   Which of the following methods can be used to fix a country’s exchange rate at a predetermined level?

   
   

   
   

   1. using foreign exchange reserves to buy its own currency

      
      
   
   

   2. using monetary policy to change interest rates

      
      
   
   

   3. implementing foreign exchange controls

      
      
   
   

   A.

   I only

   B.

   II only

   C.

   III only

   D.

   I and II only

   E.

   I, II, and III

   Which of the following methods can be used to fix a country’s exchange rate at a predetermined level?

2. Question

   The United States has which of the following exchange rate regimes?

   A.

   fixed

   B.

   floating

   C.

   fixed, but adjusted frequently

   D.

   fixed, but managed

   E.

   floating within a target zone

   The United States has which of the following exchange rate regimes?

3. Question

   Devaluation of a currency occurs when which of the following happens?

   
   

   
   

   1. The supply of a currency with a floating exchange rate increases.

      
      
   
   

   2. The demand for a currency with a floating exchange rate decreases.

      
      
   
   

   3. The government decreases the fixed exchange rate.

      
      
   
   

   A.

   I only

   B.

   II only

   C.

   III only

   D.

   I and II only

   E.

   I, II, and III

   Devaluation of a currency occurs when which of the following happens?

4. Question

   Devaluation of a currency is used to achieve which of the following?

   A.

   an elimination of a surplus in the foreign exchange market

   B.

   an elimination of a shortage in the foreign exchange market

   C.

   a reduction in aggregate demand

   D.

   a lower inflation rate

   E.

   a floating exchange rate

   Devaluation of a currency is used to achieve which of the following?

5. Question

   Monetary policy that reduces the interest rate will do which of the following?

   A.

   appreciate the domestic currency

   B.

   decrease exports

   C.

   increase imports

   D.

   depreciate the domestic currency

   E.

   prevent inflation

   Monetary policy that reduces the interest rate will do which of the following?