1. If investors believe that the country's exchange rate peg is not credible, the risk premium on that country's local currency denominated assets will probably

A) increase

B) decrease

C) stay the same

D) we do not have enough information

2. The "twin deficits" hypothesis says that:

A) national saving must equal investment.

B) the current account improves when saving rises and the government deficit falls.

C) the current account improves with a rise in government spending.

D) both a and c

E) None of the above

3. According to the Policy Trilemma, if China removes its capital controls but keeps fixed exchange rates, it must give up:

A) Monetary policy autonomy

B) Fiscal policy effectiveness

C) International risk sharing

D) Macroeconomic policy coordination

E) All of the above

4) Because Panama has a currency board, it cannot

A) hold foreign reserves

B) have a current account deficit

C) have a government budget deficit

D) use fiscal policy

E) run out of foreign reserves