Sample Exam Questions for Test 1
This exam contains in two parts. Part A consists of 10 True/False Questions worth 5 Marks. Part B
consists of 15 Multiple Choice Question worth 15 marks. Attempt all questions.
Part A – Sample questions for 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.
Answer: FALSE
Reason & Comments: Based on the premise that, other things equal, countries would prefer
a fixed exchange rate: Variable rates provide instability in international prices for the conduct
of trade.
2. The Euro currency is fixed against other currencies on the international currency
exchange markets, but allows member country currencies to float against each other.
Answer: FALSE
Reason & Comments: The Euro currency is floating against other currencies on the
international currency exchange markets, but allows member country currencies to remain
fixed against each other.
3. The theory of comparative advantage owes it origins to Ben Bernanke as described in
his book The Wealth of Bankers.
Answer: FALSE
Reason & Comments: The theory of comparative advantage owes it origins to Adam Smith
as described in his book The Wealth of Nations.
4.
Part B – Sample Questions for Multiple Choice. Encircle the most correct answer.
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.
Answer: A
2. 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
Answer: A
3. 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.
Answer: D