Question

Answer

True or false

1- The Breton Woods exchange rate mechanism can be thought of as a gold exchange standard

2- When in a liquidity trap, it is difficult for a country to affect the exchange rate using monetary policy.

3- The classical dichotomy refers to a case where money demand and money supply should be analyzed separately

4- Under the assumption of super neutrality of money, fully anticipated inflation has no welfare cost

5-In the theory of optimum currency areas, the monetary efficiency gain refers to the advantage that individual member countries of a monetary union can no longer engage in competitive devaluations

6- In an open economy a reduction in the government deficit should be accompanied with an improvement of current account

7- Even an economy with limited financial participation, monetary policy may influence the real economy。

8-In Lucas misperception model, unanticipated monetary policy shocks have real effects due to asymmetrical information

9- More frequent switching from bonds to money will result in a higher opportunity cost of holding money and lower money management costs

10- If people think that interest rates are above normal levels, they will want to hold bonds in anticipation of a rise in bond prices。

Answer 1

1. False

Devaluation is accepted in Bretton Woods. The adjustable peg was viewed as a vast improvement over the gold exchange standard with fixed parity. Currencies were convertible into gold, but unlike the gold exchange standard, countries had the ability to change par values.

2. True

A liquidity trap is when monetary policy becomes ineffective due to very low interest rate.

3. True

In macroeconomics, the classical dichotomy is the idea, attributed to classical and pre-Keynesian economics, that real and nominal variables can be analyzed separately. As such, if the classical dichotomy holds, money only affects absolute rather than the relative prices between goods.

4. True

Superneutrality further assumes that changes in the rate of money supply growth do not affect economic welfare.