MCQ 2 Flashcards
A high home inflation rate relative to other countries would ____ the home country’s current account
balance, other things equal. A high growth in the home income level relative to other countries would
____ the home country’s current account balance, other things equal.
a. increase; increase
b. increase; decrease
c. decrease; decrease
d. decrease; increase
ANS: C
If a country’s government imposes a tariff on imported goods, that country’s current account balance will
likely ____ (assuming no retaliation by other governments).
a. decrease
b. increase
c. remain unaffected
d. either A or C are possible
ANS: B
___ purchases more U.S. exports than the other countries listed here.
a. Italy
b. Spain
c. Mexico
d. Canada
ANS: D
An increase in the current account deficit will place ____ pressure on the home currency value, other things
equal.
a. upward
b. downward
c. no
d. upward or downward (depending on the size of the deficit)
ANS: B
If the home currency begins to appreciate against other currencies, this should ____ the current account
balance, other things equal (assume that substitutes are readily available in the countries, and that the
prices charged by firms remain the same).
a. increase
b. have no impact on
c. reduce
d. all of the above are equally possible
ANS: C
The World Bank was established to:
a. enhance development solely in Asia through grants.
b. enhance economic development through non-subsidized loans (at market interest rates).
c. enhance economic development through low-interest rate loans (below-market rates).
d. enhance economic development of the private sector through investment in stock of
corporations.
ANS: B
The North American Free Trade Agreement (NAFTA) increased restrictions on:
a. trade between Canada and Mexico.
b. trade between Canada and the U.S.
c. direct foreign investment in Mexico by U.S. firms.
d. none of the above.
ANS: D
Over the last several years, international trade has generally:
a. increased for most major countries.
b. decreased for most major countries.
c. stayed about constant for most major countries.
d. increased for about half the major countries and decreased for the others
ANS: A
The direct foreign investment positions by U.S. firms have generally ____ over time. Restrictions by
governments on direct foreign investment have generally ___ over time.
a. increased; increased
b. increased; decreased
c. decreased; decreased
d. decreased; increased
ANS: B
A weakening of the U.S. dollar with respect to the British pound would likely reduce the U.S. exports to
Britain and increase U.S. imports from Britain over time.
a. True
b. False
ANS: F
Assume that some U.S. firms will purchase supplies from either China or from U.S. firms. If the Chinese
yuan appreciates against the dollar, it should reduce the U.S. balance of trade deficit with China.
a. True
b. False
ANS: T
Which of the following statements is not true?
a. Exporters commonly complain that they are being mistreated because the currency of their
country is too weak.
b. Outsourcing affects the balance of trade because it means that a service is purchased in
another country.
c. Sometimes, trade policies are used to punish countries for various actions.
d. Tariffs imposed by the EU have caused some friction between EU countries that
commonly import products and other EU countries.
e. All of the above are true.
ANS: A
Which of the following is not a goal of the International Monetary Fund (IMF)?
a. To promote cooperation among countries on international monetary issues
b. To promote stability in exchange rates
c. To enhance a country’s long-term economic growth via the extension of structural
adjustment loans
d. To promote free trade
e. To promote free mobility of capital funds across countries
ANS: C
According to the “J curve effect,” a weakening of the U.S. dollar relative to its trading partners’ currencies
would result in an initial ____ in the current account balance, followed by a subsequent ____ in the
current account balance.
a. decrease; increase
b. increase; decrease
c. decrease; decrease
d. increase; increase
ANS: A
The ____, an accord among 117 nations, called for lower tariffs around the world.
a. General Agreement on Tariffs and Trade (GATT)
b. North American Free Trade Agreement (NAFTA)
c. Single European Act of 1987
d. European Union Accord
e. None of the above
ANS: A
