Problem Set Review 1
||1. Below is a series of statements. You must
decide which of the statements would make you look smart at a Washington
D.C cocktail party. Answer T (for true) if the statement would make you
look smart, answer F (for false) if it would make you look, ... well ...
, not so smart. Provide a brief explanation for each response. Of course,
let's assume that each comment is relevant to the conversation and does
NOT follow the question, "So, I hear your mother is in town?"
A. "A trade deficit can only occur if the government budget is in
B. "I heard the FED is intervening to lower the value of the dollar,
but, if the FED sterilizes the intervention, it probably won't have much
C. "The most effective way the FED can raise the dollar value is
to lower the money supply which will raise US interest rates."
D. "Did you know that about $10 billion dollars is traded on foreign
exchange markets around the world each day."
E. "The persistent US trade deficits implies that the US will have
to suffer a lower average standard of living in the future. It's inevitable!"
F. "Everyone knows that trade deficits are a sign of economic weakness
and trade surpluses are a sign of economic strength."
G. "One of the main reasons the Bretton-Woods system of fixed exchange
rates broke apart was because the US failed to follow the rules."
H. "If investors think that Latin American currencies will suffer
the same fate as some of the Asian NICs currencies in the late 1990s,
it may lead to significant capital flight."
I. "One of the biggest obstacles to a single European currency was
that each nation involved had to give up some of their monetary autonomy."
J. "A rapid currency depreciation can only have good effects, since
it will stimulate exports and reduce imports."
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Last Updated on 4/3/04