Question Details

The Fed's tight monetary policy drove up interest rates in an attempt to smother inflation 


1. "By avoiding policies to slow the growth of domestic demand and instead forcing the U.S. dollar to serve as the adjustment vehicle in narrowing the trade deficit, the United States will ensure that the global economic landscape during the next five years will be turned upside down." The main implication of this is that 
a) the U.S. dollar will rise b) the U.S. dollar will fall 
c) U.S. unemployment will rise d) the U.S. interest rate will rise 
2. "The dollar has been falling largely because it was overvalued during the first half of the 1980s. The Fed's tight monetary policy drove up interest rates in an attempt to smother inflation and hold wages down." The dollar became overvalued because 
a) exports were extremely high b) there was a balance of payments deficit 
c) high interest rates created large capital inflows 
d) the Fed intervened in the foreign exchange market to increase the value of the dollar 
3. "Japanese officials and many private economists say the stronger yen will initially cause Japan's trade surplus to rise because it inflates the U.S. dollar value of Japanese exports even though volume may be falling." This reflects the impact of 
a) capital inflows b) interest rate changes 
c) the J curve phenomenon d) a chronic current account deficit 118 
4. "Speculators are clearly betting that a French franc will soon buy fewer German marks. While France and Germany apparently have had the financial muscle to fend off the speculators so far, it is not clear whether they are prepared to pay the price of a disrupted economy for a prolonged period." This disruption is 
a) inflation in both France and Germany b) unemployment in both France and Germany 
c) unemployment in France and inflation in Germany 
d) inflation in France and unemployment in Germany 
5. "Canada's official international reserves rose to an all-time high in October as the Bank of Canada acquired close to US$600 million trying to ......" This clipping is best completed with 
a) prevent a fall in the Canadian dollar b) prevent a rise in the Canadian dollar 
c) shrink the Canadian money supply d) find financing for the government deficit



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