SS 6: Economics in a Global Context Flashcards
A common market structure incorporates all aspects of the customs union and extends it by:
allowing free movement of factors of production among members.
Autarky is best described as a state in which a country::
Does not trade with other countries
In an effort to influence the economy, a central bank conducted open market activities by selling
government bonds. This action implies that the central bank is most likely attempting to:
contract the economy by reducing bank reserves.
The Ricardian trade model supports the idea that comparative advantage and the pattern of trade are determined by:
Differences in technology between countries
Assuming its trading partner does not retaliate, which condition must hold in order for a large country to increase its national welfare by imposing a tariff?
The deadweight loss must be smaller than the benefit of its improving terms of trade.
Quota rents are best described as:
The extra profits foreign producers can earn when a quota is imposed
Forward/Spot formula:
Discount/Premium = (forward/spot) - 1
A form of trading bloc which imposes trade restrictions on non-member countries is usually referred to as a:
Customs union
The fiscal multiplier is:
1
/
1 - c(1 - T)
where:
c = marginal propensity to consume = consumption / disposable income
T = the tax rate
Which international organization has an objective of creating the basic economic infrastructure essential for creation and maintenance of domestic financial markets and a well functioning financial industry in developing countries?
World Bank
The country with the higher interest rate will always trade at a _______ in the forward market
Discount
A crawling peg currency regime which is regularly adjusted to keep pace with inflation is best known as a:
Passive crawling peg
The ______ account measures the flow of goods and services in to and out of the country.
Current
Foreign direct aid would most likely be captured in which of the following balance of payment components?
Current Account
Forward points =
(Forward rate - Spot rate) x 10,000
The ______ account measures the transfer of capital.
Capital
Name the 4 sub-accounts of the Current Account:
I: Merchandise trade e.g. commodities bought and sold or given away
II: Services e.g. tourism
III: Income receipts e.g. income on foreign investment
IV: Unilateral transfers e.g. one-way transfers of assets such as foreign direct aid
Central banks have three primary tools available to them:
open market operations
setting the official policy rate
reserve requirements
As a country opens up to trade, the benefit accrues to the:
Abundant factor
The _______ account measures the flow of financial assets abroad and foreign owned financial assets within the reporting country.
Financial
In the context of the balance of payments (BOP) accounts, tourism, transportation and business services are likely to be captured in which component of the BOP?
Current Account
Which organization attempts to limit global systemic risk by preventing contagion in scenarios such as the 2010/11 Greek sovereign debt crisis?
International Monetary Fund (IMF)
A direct exchange rate quote is where the _______ currency is the price (variable) currency, and the ______ currency is the base currency.
Domestic, Foreign
In the classification of currency regimes, a currency board system (CBS) most likely differs from a fixed-rate parity system in that:
the monetary authority within a CBS does not act as a traditional lender of last resort.
In a CBS, the monetary authority has an obligation to maintain 100% foreign currency reserves against the monetary base. It therefore cannot lend to troubled financial institutions. As long as the country under a fixed parity regime maintains its exchange peg, the central bank can serve as a lender of last resort.
In the context of the balance of payments (BOP) accounts, the sale of mineral rights is likely to be captured in which of the following components of the BOP?
Capital Account
(The capital account records the transfers of capital and the sale and purchase of non-produced, non-financial assets such as intangible assets and mineral rights)
The Heckscher-Ohlin trade model suggests that:
Both capital and labor are variable factors of production
‘A country uses the currency of another nation as it medium of exchange and unit of account’ describes:
Dollarization
Government issued bonds that are owned by foreign countries would most likely be captured in which of the following balance of payment components?
Financial Account
If a government places a limit on investments made by its citizens in foreign stocks, it is called:
Capital Restriction
Trade restrictions involve:
The selling and buying of products from other countries
How can a country reduce its trade deficits?
Increase private savings
Reduce investments
Increase budget surpluses
(X-M) = (S-I) + (T-G)
‘The depreciation of a currency is more likely to narrow the country’s trade deficit if national savings increase relative to domestic investment in physical capital’ is a tenet of:
The absorption approach
Which model suggests that the source of comparative advantage is labor productivity?
Ricardian model
Real exchange rate =
Nominal spot exchange rate * CPI of foreign country / CPI of domestic country
