McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Bachelor of Arts in Economics (BA Economics) , Master of Business Administration (MBA) .
Chapters
| 151. |
Credit (+) items in the balance of payments correspond to anything that: |
| A. | Involves receipts from foreigners |
| B. | Involves payments to foreigners |
| C. | Decreases the domestic money supply |
| D. | Increases the demand for foreign exchange |
| Answer» A. Involves receipts from foreigners | |
| 152. |
Debt (–) items in the balance of payments correspond to anything that: |
| A. | Involves receipts from foreigners |
| B. | Involves payments to foreigners |
| C. | Increases the domestic money supply |
| D. | Decreases the demand for foreign exchange |
| Answer» B. Involves payments to foreigners | |
| 153. |
When all of the debit or credit items in the balance of payments are combined: |
| A. | Merchandise imports equal merchandise exports |
| B. | Capital imports equal capital exports |
| C. | Services exports equal services imports |
| D. | The total surplus or deficit equals zero |
| Answer» D. The total surplus or deficit equals zero | |
| 154. |
In the balance of payments, the statistical discrepancy is used to: |
| A. | Ensure that the sum of all debits matches the sum of all credits |
| B. | Ensure that trade imports equal the value of trade exports |
| C. | Obtain an accurate account of a balance-of-payments deficit |
| D. | Obtain an accurate account of a balance-of-payments surplus |
| Answer» A. Ensure that the sum of all debits matches the sum of all credits | |
| 155. |
All of the following are credit items in the balance of payments, except: |
| A. | Investment inflows |
| B. | Merchandise exports |
| C. | Payments for American services to foreigners |
| D. | Private gifts to foreign residents |
| Answer» D. Private gifts to foreign residents | |
| 156. |
All of the following are debit items in the balance of payments, except: |
| A. | Capital outflows |
| B. | Merchandise exports |
| C. | Private gifts to foreigners |
| D. | Foreign aid granted to other nations |
| Answer» B. Merchandise exports | |
| 157. |
If the central bank purchases assets, it will result in: |
| A. | An increase in the central bank's net worth. |
| B. | A decline in the central bank's net worth. |
| C. | An increase in the money supply. |
| D. | A decline in the money supply. |
| Answer» C. An increase in the money supply. | |
| 158. |
If there is a decline in output, to keep the exchange rate fixed, the central bank has to: |
| A. | Sell domestic assets. |
| B. | Purchase foreign assets. |
| C. | Sell foreign assets. |
| D. | Purchase domestic assets. |
| Answer» C. Sell foreign assets. | |
| 159. |
What is the effect of an increase in taxes under fixed exchange rates and perfect asset substitutability in the short run? |
| A. | A decline in output and no change in interest rates. |
| B. | A decline in output and interest rates. |
| C. | An increase in output and no change in interest rates. |
| D. | An increase in output and interest rates. |
| Answer» C. An increase in output and no change in interest rates. | |
| 160. |
What is the effect of a currency devaluation under fixed exchange rates in the short run? |
| A. | A decline in output. |
| B. | A decline in foreign reserves. |
| C. | An increase in exports. |
| D. | An increase in imports. |
| Answer» C. An increase in exports. | |
| 161. |
Reducing a current account deficit requires a country to: |
| A. | Increase the government’s deficit and increase private investment relative to saving |
| B. | Increase the government’s deficit and decrease private investment relative to saving |
| C. | Decrease the government’s deficit increase private investment relative to saving |
| D. | Decrease the government’s deficit and decrease private investment relative to saving |
| Answer» D. Decrease the government’s deficit and decrease private investment relative to saving | |
| 162. |
Reducing a current account surplus requires a country to: |
| A. | Increase the government’s deficit and increase private investment relative to saving |
| B. | Increase the government’s deficit and decrease private investment relative to saving |
| C. | Decrease the government’s deficit and increase private investment relative to saving |
| D. | Decrease the government’s deficit and decrease private investment relative to saving |
| Answer» A. Increase the government’s deficit and increase private investment relative to saving | |
| 163. |
Concerning a country’s business cycle, rapid growth of production and employment is commonly associated with: |
| A. | Large or growing trade deficits and current account deficits |
| B. | Large or growing trade deficits and current account surpluses |
| C. | Small or shrinking trade deficits and current account deficits |
| D. | Small or shrinking trade deficits and current account surpluses |
| Answer» A. Large or growing trade deficits and current account deficits | |
| 164. |
The burden of a current account deficit would be the least if a nation uses what it borrows to finance: |
| A. | Unemployment compensation benefits |
| B. | Social Security benefits |
| C. | Expenditures on food and recreation |
| D. | Investment on plant and equipment |
| Answer» D. Investment on plant and equipment | |
| 165. |
A major difference between the spot market and the forward market is that the spot market deals with: |
| A. | The immediate delivery of currencies |
| B. | The merchandise trade account |
| C. | Currencies traded for future delivery |
| D. | Hedging of international currency risks |
| Answer» A. The immediate delivery of currencies | |
| 166. |
The relationship between the exchange rate and the prices of tradable goods is known as the: |
| A. | Purchasing-power-parity theory |
| B. | Asset-markets theory |
| C. | Monetary theory |
| D. | Balance-of-payments theory |
| Answer» A. Purchasing-power-parity theory | |
| 167. |
Low real interest rates in the United States tend to: |
| A. | Decrease the demand for dollars, causing the dollar to depreciate |
| B. | Decrease the demand for dollars, causing the dollar to appreciate |
| C. | Increase the demand for dollars, causing the dollar to depreciate |
| D. | Increase the demand for dollars, causing the dollar to appreciate |
| Answer» A. Decrease the demand for dollars, causing the dollar to depreciate | |
| 168. |
Assume that the United States faces an 8 percent inflation rate while no (zero) inflation existsin Japan. According to the purchasing-power-parity theory, the dollar would be expected to: |
| A. | Appreciate by 8 percent against the yen |
| B. | Depreciate by 8 percent against the yen |
| C. | Remain at its existing exchange rate |
| D. | None of the above |
| Answer» B. Depreciate by 8 percent against the yen | |
| 169. |
Suppose Mexico and the United States were the only two countries in the world. There exists anexcess supply of pesos on the foreign exchange market. This suggests that: |
| A. | Mexico’s current account is in surplus |
| B. | Mexico’s current account is in deficit |
| C. | The U.S. current account is in deficit |
| D. | The U.S. current account is in equilibrium |
| Answer» B. Mexico’s current account is in deficit | |
| 170. |
If Canada runs a current account surplus and exchange rates are floating: |
| A. | The value of other currencies will rise relative to the dollar |
| B. | The dollar will depreciate relative to other currencies |
| C. | The price of foreign goods will become cheaper for Canadians |
| D. | The price of foreign goods will rise for Canadians |
| Answer» C. The price of foreign goods will become cheaper for Canadians | |
| 171. |
Gold standard means: |
| A. | Currency of the country is made of gold |
| B. | Paper currency is not used |
| C. | Currency of the country is freely convertible into gold |
| D. | (a) & (c) of above |
| Answer» D. (a) & (c) of above | |
| 172. |
If a country decreases the external value of its currency, it will affect: |
| A. | Volume of exports |
| B. | Volume of imports |
| C. | General price level |
| D. | All of the above |
| Answer» D. All of the above | |
| 173. |
Rich countries have deficit in their balance of payments: |
| A. | Sometimes |
| B. | Never |
| C. | Alternate years |
| D. | Always |
| Answer» A. Sometimes | |
| 174. |
Balance of payments means: |
| A. | The balance of receipts and payments of all banks |
| B. | The balance of receipts and payments of State Bank |
| C. | The balance of receipts and payments of foreign exchange by a country |
| D. | The balance of govt. receipts and payments |
| Answer» C. The balance of receipts and payments of foreign exchange by a country | |
| 175. |
Assume a two-country world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP) as related to these two countries? |
| A. | If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken. |
| B. | If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will weaken. |
| C. | If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will strengthen. |
| D. | If Country B's inflation rate exceeds Country A's inflation rate, Country A's currency will weaken. |
| Answer» A. If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken. | |
| 176. |
The international Fisher effect (IFE) suggests that: |
| A. | a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate. |
| B. | a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate. |
| C. | a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate. |
| D. | a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate. |
| Answer» A. a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate. | |
| 177. |
According to the IFE, if British interest rates exceed U.S. interest rates: |
| A. | the British pound's value will remain constant. |
| B. | the British pound will depreciate against the dollar. |
| C. | the British inflation rate will decrease. |
| D. | the forward rate of the British pound will contain a premium. |
| Answer» B. the British pound will depreciate against the dollar. | |
| 178. |
If interest rates on the euro are consistently below U.S. interest rates, then for the international Fisher effect (IFE) to hold: |
| A. | the value of the euro would often appreciate against the dollar. |
| B. | the value of the euro would often depreciate against the dollar. |
| C. | the value of the euro would remain constant most of the time. |
| D. | the value of the euro would appreciate in some periods and depreciate in other periods, but on average have a zero rate of appreciation. |
| Answer» A. the value of the euro would often appreciate against the dollar. | |
| 179. |
If interest rate parity holds, then the one-year forward rate of a currency will ______ the predicted spot rate of the currency in one year according to the international Fisher effect. |
| A. | greater than |
| B. | less than |
| C. | equal to |
| D. | answer is dependent on whether the forward rate has a discount or premium |
| Answer» C. equal to | |
| 180. |
You have an opportunity to invest in Australia at an interest rate of 8%. Moreover, you expect the Australian dollar (A$) to appreciate by 2%. Your effective return from this investment is: |
| A. | 8.00%. |
| B. | 10.16%. |
| C. | 6.00%. |
| D. | 5.88%. |
| Answer» B. 10.16%. | |
| 181. |
The balance of payments equals: |
| A. | The difference between household spending and income |
| B. | The difference between government spending and income |
| C. | A measure of the value of economic transactions between residents of a country and the rest of the world |
| D. | The difference between inflation and unemployment |
| Answer» C. A measure of the value of economic transactions between residents of a country and the rest of the world | |
| 182. |
If there were a balance of payments deficit then in a floating exchange rate system: |
| A. | The external value of the currency would tend to fall |
| B. | The external value of the currency would tend to rise |
| C. | The injections from trade are greater than the withdrawals |
| D. | Aggregate demand is increasing |
| Answer» A. The external value of the currency would tend to fall | |
| 183. |
If the value of the pound in other currencies is strong, then other things being equal: |
| A. | The price of UK products abroad in foreign currency will fall |
| B. | The price of UK products abroad in foreign currency will rise |
| C. | The price of UK products in the UK will rise |
| D. | The price of UK products in the UK will fall |
| Answer» B. The price of UK products abroad in foreign currency will rise | |
| 184. |
If the value of the pound in terms of other currencies rises: |
| A. | The spending on UK exports in pounds must rise |
| B. | The spending on UK exports in foreign currency will rise if demand is price elastic |
| C. | The demand for UK exports will rise |
| D. | The spending on UK exports in foreign currency will fall if demand for UK exports is price elastic |
| Answer» D. The spending on UK exports in foreign currency will fall if demand for UK exports is price elastic | |
| 185. |
The supply of pounds to the currency market will be upward sloping if: |
| A. | The demand for UK exports is price elastic |
| B. | The demand for UK exports is price inelastic |
| C. | The demand for imports into the UK is price elastic |
| D. | The demand for imports into the UK is price inelastic |
| Answer» C. The demand for imports into the UK is price elastic | |
| 186. |
A fall in the value of the pound is likely to decrease spending on imports if: |
| A. | The price elasticity of demand for imports is price elastic |
| B. | The price elasticity of demand for imports is price inelastic |
| C. | The price elasticity of demand for imports has a unit price elasticity |
| D. | The price elasticity of demand for exports is price elastic |
| Answer» A. The price elasticity of demand for imports is price elastic | |
| 187. |
If the exchange rate is above the equilibrium level then in a floating exchange rate system: |
| A. | There is excess demand and the exchange rate should fall |
| B. | There is excess supply and the exchange rate should fall |
| C. | There is excess demand and the exchange rate should rise |
| D. | There is excess supply and the exchange rate should rise |
| Answer» B. There is excess supply and the exchange rate should fall | |
| 188. |
If the exchange rate is below the equilibrium level then in a floating exchange rate system: |
| A. | There is excess demand and the exchange rate should fall |
| B. | There is excess supply and the exchange rate should fall |
| C. | There is excess demand and the exchange rate should rise |
| D. | There is excess supply and the exchange rate should rise |
| Answer» C. There is excess demand and the exchange rate should rise | |
| 189. |
A depreciation of a currency occurs when: |
| A. | The value of the currency falls |
| B. | The value of the currency increases |
| C. | Inflation falls |
| D. | The balance of payments improves |
| Answer» A. The value of the currency falls | |
| 190. |
An appreciation of the currency is likely to occur if: |
| A. | Domestic interest rates fall |
| B. | There is an increase in demand for imports |
| C. | There is an increase in demand for exports |
| D. | There is an increase in the balance of payments deficit |
| Answer» C. There is an increase in demand for exports | |
| 191. |
If the central bank purchases assets, it will result in: |
| A. | An increase in the money supply. |
| B. | An increase in the central bank's net worth. |
| C. | A decline in the money supply. |
| D. | A decline in the central bank's net worth. |
| Answer» A. An increase in the money supply. | |
| 192. |
If there is a decline in output, to keep the exchange rate fixed, the central bank has to: |
| A. | Purchase foreign assets. |
| B. | Purchase domestic assets. |
| C. | Sell domestic assets. |
| D. | Sell foreign assets. |
| Answer» D. Sell foreign assets. | |
| 193. |
What is the effect of an increase in taxes under fixed exchange rates and perfect asset substitutability in the short run? |
| A. | An increase in output and no change in interest rates. |
| B. | A decline in output and interest rates. |
| C. | A decline in output and no change in interest rates. |
| D. | An increase in output and interest rates. |
| Answer» A. An increase in output and no change in interest rates. | |
| 194. |
What is the effect of a currency devaluation under fixed exchange rates in the short run? |
| A. | A decline in output. |
| B. | An increase in imports. |
| C. | A decline in foreign reserves. |
| D. | An increase in exports. |
| Answer» D. An increase in exports. | |
| 195. |
If a respectable source speculates that there is a possibility of devaluation: |
| A. | Output will increase. |
| B. | There will be a net private capital outflow. |
| C. | The central bank's foreign reserves will increase. |
| D. | Domestic interest rates will decline. |
| Answer» B. There will be a net private capital outflow. | |
| 196. |
Under imperfect asset substitutability: |
| A. | Central banks cannot keep the exchange rate fixed. |
| B. | Domestic interest rates should be equal to foreign interest rates. |
| C. | Central banks cannot affect money supply. |
| D. | Sterilized intervention affects money supply. |
| Answer» D. Sterilized intervention affects money supply. | |
| 197. |
Which of the following is NOT true about the reserve currency standard? |
| A. | The currency to which the rates are fixed should be the same as the currency the central bank holds. |
| B. | Exchange rates are all fixed. |
| C. | The reserve center can use monetary policy to keep exchange rates fix |
| Answer» C. The reserve center can use monetary policy to keep exchange rates fix | |
| 198. |
Which of the following is NOT true about the gold standard? |
| A. | Central banks have to hold gold as reserve assets. |
| B. | It does not lead to monetary policy spillovers. |
| C. | Exchange rates are all fix |
| Answer» B. It does not lead to monetary policy spillovers. | |
| 199. |
Which of the following is NOT a motive for international asset trade? |
| A. | Capital controls |
| B. | Intertemporal trade |
| C. | International portfolio diversification |
| D. | Tax avoidance |
| Answer» A. Capital controls | |
| 200. |
Which of the following is NOT a part of a "policy trilemma"? |
| A. | International trade policy |
| B. | Capital controls |
| C. | Monetary policy |
| D. | Exchange rate regime |
| Answer» A. International trade policy | |
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