Question

122. If inflation in Japan is 5% and in the U.S. it is 3%, then we would predict that the exchange rate (from the U.S. perspective) will:

a. fall by 5%.

b. fall by 3%.

c. fall by 2%.

d. rise by 2%.

e. rise by 8%.

124. There were fixed exchange rates with:

a. the gold standard.

b. the Bretton Woods System.

c. Unmanaged free floating rates.

d. All of the above.

e. Only A and B of the above.

125. Capital flows are automatically restricted under:

a. the gold standard.

b. the Bretton Woods System.

c. Unmanaged free floating rates.

d. Managed rates.

e. All of the above.

Answer 1

122):- C is right option Fall by 2 %

inflation is defined as a an increase in the price of goods & services that is representative of the economy as a whole

The upward movement in the average level of prices

124):-B is right option

There were fixed exchange rates with the Bretton Woods System.

The Bretton Woods System

After WW2 the leaders of major states wanted to create a system that would embrace economic liberalism- hence they created the Bretton Woods System

Goals:

1. Ensure exchange rate stability

2. promote economic growth (wanted to eventually establish free trade)

3. prevent competitive devaluations was sucsessful

125):-D is right option

Capital flows are automatically restricted under managed rates.

Managed rates are those that are manipulated to fall within a wide band of prices.

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