17.1 3Why Study Fixed Exchange Rates?1) There are no questions for this section. Answer: TRUE17.2 Central Bank Intervention and the Money Supply1) A central banks international reserves include C) any gold that it owns and foreign and domestic assets. 2) The liabilities side of a central bank include C) deposits held by the private banks and currency in circulation. 3) Which one of the following statements is most true? A) Any central bank purchase of assets automatically results in an increase in the domestic money supply, while any central bank sale of assets automatically causes the money supply to decline. A4)Which one of the following statements is the most true? A) If central banks are not sterilizing and the home country has a balance of payments surplus, any associated increase in the home central banks foreign asset implies an increased home money supply. 5) Which one of the following statements is most true? C) If central banks are not sterilizing and the home country has a balance of payments surplus, any associated decrease in a foreign central banks claims on the home country implies a decreased foreign money supply. 17.3 How the Central Bank Fixes the Exchange Rate1) A system of managed floating exchange rates is A) a system in which governments may attempt to moderate exchange rate movements without keeping exchange rates rigidly fixed. 2) Under fixed exchange rate, in general, A) the domestic and foreign interest rates are equal, R = R. 3) Under fixed exchange rate, in general which one of the following statements is the most accurate? A) The following condition should hold for domestic money market equilibrium: Ms/P = L(R, Y). 4) Which one of the following statements is the most accurate? D) Under a fixed exchange rate, central bank monetary tools are powerless to affect the economys money supply or its output. 5) What is the expected dollar rate of return on dollar deposits with todays exchange rate at $1.10 per euro, next years expected exchange rate at $1.165 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%? A) 10% 17.4 Stabilization Policies with a Fixed Exchange Rate1) By fixing the exchange rate, the central bank gives up its ability to E) influence the economy through monetary policy. 2) Fiscal Expansion under a fixed exchange has what effect(s) on the economy: D) the exchange rate decreases initially but then returns to its original point. 3) When a countrys currency is devalued: B) output increases. D) the money supply increases. E) Both B and D. 4) Under fixed rates, which one of the following statements is the most accurate? C) Monetary policy can affect only international reserves. 5) Under fixed rates, which one of the following statements is the most accurate? A) Fiscal policy can affect output, employment and international reserves at the same time.6)Which one of the following statements is the most accurate? C) Fiscal policy affects employment more under fixed than under flexible exchange rate regimes. 7) Which one of the following statements is the most accurate? B) Fiscal policy affects output more under fixed than under flexible exchange rate regimes. 8) Which one of the following statements is the most accurate? B) A devaluation occurs when the central bank raises the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank lowers E. 9) Which one of the following statements is the most accurate? C) Depreciation is a rise in E when the exchange rate floats while devaluation is a rise in E when the exchange rate is fixed. 10) Which one of the following statements is the most accurate? B) Appreciation is a fall in E when the exchange rate floats while revaluation is a fall in E when the exchange rate is fixed. 11) Which one of the following statements is the most accurate? C) Devaluation reflects a deliberate government decision while depreciation is an outcome of government actions and market forces acting together. 12) Which one of the following statements is the most accurate? B) Revaluation reflects a deliberate government decision while appreciation is an outcome of government actions and market forces acting together. 13) Under fixed exchange rate, which one of the following statements is the most accurate? B) Devaluation causes a rise in output, a rise in official reserves, and an expansion of the money supply. A14)Under fixed exchange rate, which one of the following statements is the most accurate? A) Devaluation causes a rise in output. 15) Under fixed exchange rate, which one of the following statements is the most accurate? C) Devaluatio