1.Which of the following is a negative consequence of high inflation?

Select one:

a.Low interest rates

b.Companies reducing future investments

c.Consumers reducing spending on goods

d.It will be harder for companies to pay back their loans

2. All of the following are reasons why central banks intervene in the currency markets except

Select one:

a.To reduce exchange rate uncertainty

b.To help the government reduce a budget deficit

c.To stabilize currency movements

d.To respond to a short term crisis

3. Which of the following is an advantage of a fixed exchange rate system?

Select one:

a.Can adjust to external shocks through an adjustment of the exchange rate

b.It normally leads to high economic growth

c.Stability and less uncertainty of the exchange rate

d.Monetary control. Can adjust interest rates and money supply to the country's economic situation

4.Which one is an advantage of a freely floating exchange rate system?

Select one:

a.It normally leads to low inflation

b.Can adjust to external shocks through an adjustment of the exchange rate

c.Stability and less uncertainty of the exchange rate.

d.Smaller countries in particular can become less vulnerable to capital inflows or outflows

5. Denmark's currency is fixed to the Euro. This is an example of a

Select one:

a.Fixed currency system

b.Pegged currency system

c.Floating currency system

d.Partnership currency system

6. All of the following are examples of how a central bank could try to weaken its exchange rate except

Select one:

a.Lower interest rates

b.Increase the money supply ofits currency

c.Increase the tax rate on wages

d.Sell the local currency and buy foreign currency

7. How can a central bank use direct intervention to change the value of its currency?

Select one:

a.It could try to lower interest rates

b.It could buy or sell its own currency in exchange for foreign currency

c.It could try to control rises in employee wages

d.It could to lower inflation rates

8. If the European central bank is using its US dollar foreign currency reserves to buy Euros, it is trying to

Select one:

a.strengthen the Euro's exchange rate

b.weaken the Euro's exchange rate

c.increase exports

d.strengthen the US dollar exchange rate

9. What is the main monetary policy goal of most countries' central banks

Select one:

a.To reduce inflation

b.To increase inflation

c.To maintain inflation at current levels

d.To maintain low and stable inflation

10. Which of the following is a negative consequence of deflation (negative inflation)

Select one:

a.Peoplereducing their bank savings.

b.High interest rates

c.Companies will become less competitive against foreign competitors

d.Consumers reducing their spending on goods