Q. Under imperfect asset substitutability:
✅ Correct Answer: (D)
Sterilized intervention affects money supply.
International Economics MCQs and Notes
Q. If a respectable source speculates that there is a possibility of devaluation:
✅ Correct Answer: (B)
There will be a net private capital outflow.
Q. What is the effect of a currency devaluation under fixed exchange rates in the short run?
✅ Correct Answer: (D)
An increase in exports.
Q. What is the effect of an increase in taxes under fixed exchange rates and perfect asset substitutability in the short run?
✅ Correct Answer: (A)
An increase in output and no change in interest rates.
Q. If there is a decline in output, to keep the exchange rate fixed, the central bank has to:
✅ Correct Answer: (D)
Sell foreign assets.
Q. If the central bank purchases assets, it will result in:
✅ Correct Answer: (A)
An increase in the money supply.
Q. An appreciation of the currency is likely to occur if:
✅ Correct Answer: (C)
There is an increase in demand for exports
Q. A depreciation of a currency occurs when:
✅ Correct Answer: (A)
The value of the currency falls
Q. If the exchange rate is below the equilibrium level then in a floating exchange rate system:
✅ Correct Answer: (C)
There is excess demand and the exchange rate should rise
Q. If the exchange rate is above the equilibrium level then in a floating exchange rate system:
✅ Correct Answer: (B)
There is excess supply and the exchange rate should fall