Question

68. The benefits of dollarization include the following except for

            (a) decreases in transaction costs and exchange rate risk as a result of a common currency.

            (b) increases in trade and investment within the unified currency zone.

            (c) lower inflation and lower interest rates.

            (d) the ability of the central bank of a dollarized country to conduct independent monetary policy.

69. Which of the following statements is NOT true?

            (a) A dollarized country essentially accepts the monetary policy of the Fed.

            (b) A dollarized country cannot count on the Fed to come to its rescue when it faces an economic crisis.

            (c) The Fed cannot perform the lender of last resort function for a dollarized country without the approval

            of the U.S. Congress.

            (d) A dollarized country cannot establish its own tariffs, subsidies, and other trade policies.

            (e) A dollarized country can maintain its own spending on education, police protection, social insurance.

70. If a nation officially dollarizes its economy, the nation in effect makes        loans to the United States, and

   the United States        in terms of seigniorage.

            (a) interest-bearing; benefits                                  (b) interest-bearing; loses

            (c) interest-free; benefits                          (d) interest-free; loses

Answer 1

68.The benefits of the dollarization include the following except for (d).when dollarization happens in country the country will give up its authority to influence the monetary policy.A dollarized economy essentially accepts the monetary policy of Fed.Regarding the other options all other options are benefits of dollarization.It will lead to the decrease in the transaction costs and will lead to lower inflation and interest rates.

69.(a) is correct.A dollarized economy essentially accepts the monetary policy of Fed.The country will give up some of its power to influence the economy through monetary policy.(b) is false.Whenever an economic crisis happens and whenever the country loses it currencies value and unstable it will start to recognize US dollar as the legal tender which will reduce the transaction costs.
(C) False:Whenever a country decides to dollarize it will give up some power to influence the economy through monetary policy and it will abide to Feds monetary policy.The dollarizing country will forfeits a formal lender of last resort since in adopting a foreign currency .The domestic country will face more liquidity risks.(d).true:the dollarising economy cannot establish it's own tariffs subsidies and trade policies because dollarized economy abides to the monetary policy of fed (e):True:the dollarized country can maintain it's own spending on education,insurance,police protection activities which are mainly state activities.

70.when the country decides to dollarize it will have interest free benefits .When the economy decides to dollarize it will abide to the monetary policy of Fed and it will lower the interest rates.It will decrease the transaction costs and exchange rate risk as a result of common currency.