Question Details

Exporters and some economists have argued that the central bank should drive 


1. "Tying the Canadian dollar to the U.S. dollar may eliminate some worries, but it will create others, among them concern that the U.S. might not be as dedicated as Canada is to fighting inflation." This is of concern to Canadians because Canada will be 
a) unable to adopt its own fiscal policy 
b) forced to experience the higher U.S. inflation rate 
c) forced to experience a continual balance of payments deficit 
d) forced to have a dramatically higher nominal interest rate than the U.S. 
2. "The surest way to sustain the exchange value of our currency is to maintain its purchasing power at home." The rationale behind this statement is that PPP says that 
a) low inflation will cause our exchange rate to fall slowly 
b) zero inflation will cause our exchange rate to be constant 
c) high inflation will cause our exchange rate to rise quickly 
d) inflation lower than our trading partners' inflation causes our exchange rate to rise 
3. "Switzerland used to boast one of the lowest inflation rates in the world and one of the strongest currencies, thanks to sound monetary policies and prudent public finances." Low inflation creates a strong currency if 
a) unemployment is low b) the exchange rate is fixed 
c) the interest rate is kept low d) the exchange rate is flexible 
4. "But economic theory and our own experience tell us that using monetary policy to drive down the exchange rate will be successful only until ......." This is best completed with. 126 
a) the resulting trade deficit wipes it out b) prices rise to restore the real exchange rate 
c) prices rise to restore the nominal exchange rate 
d) prices fall to restore the nominal exchange rate 
5. "Exporters and some economists have argued that the central bank should drive _____ the value of the dollar to boost economic activity. The Fed claims, however, that its ability to influence the ____ exchange rate is severely limited." The blanks are best filled with 
a) up; real b) down; real c) up; nominal d) down; nominal



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