Question 1

On average, developing countries typically are _____ relative to developed countries.
A) capital abundant
B) labor scarce
C) labor abundant
D) technology abundant
E) R&D abundant

Accepted Answer

Developing countries are typically characterized by being labor abundant due to their larger populations and lower levels of capital and technology compared to developed countries.

Question 2

For developing countries, current account _____ tend to couple with financial account _____ .
A) deficits, surpluses
B) surpluses, surpluses
C) deficits, deficits
D) surpluses, deficits
E) balances, balances

Accepted Answer

In the balance of payments, a current account deficit often corresponds with a financial account surplus. This is because when a country spends more on foreign trade than it earns, it must cover the deficit by borrowing from foreign sources or selling domestic assets to foreign entities, which are recorded in the financial account as inflows (surpluses).

Question 3

Borrowing by a country in the form of bonds or bank loans is known as:
A) equity.
B) securitization.
C) debt.
D) formula lending.
E) sovereign default

Accepted Answer

Borrowing by a country in the form of bonds or bank loans is referred to as "debt."

Question 4

Government borrowing from commercial banks is known as:
A) equity.
B) sovereign lending.
C) financial lending.
D) official development assistance.
E) IMF conditionality.

Accepted Answer

Sovereign lending refers to the process where governments borrow money from commercial banks or other financial institutions. This type of lending is often used by governments to finance budget deficits, invest in infrastructure projects, or stabilize their economies.

Question 5

Borrowing by countries in the form of FDI or investment in stocks is known as:
A) official development assistance.
B) equity.
C) debt.
D) sovereign lending.
E) All of the above

Accepted Answer

Equity refers to investment in stocks or foreign direct investment (FDI), where investors gain ownership stakes in a company or project.

Question 6

A characteristic of _____ is that payments have to made at a certain point in time no matter what condition of the borrower.
A) equity
B) FDI
C) debt
D) ODA
E) IMF conditionality.

Accepted Answer

Debt requires payments to be made at specific intervals regardless of the borrower's financial condition, distinguishing it from options like equity or grants, where repayment terms can be more flexible or non-existent.

Question 7

Inflows of debt and equity to the developing countries total about:
A) $122 billion.
B) $500 billion.
C) $1 trillion.
D) $2 trillion.
E) $5 trillion.

Accepted Answer

Inflows of debt and equity to the developing countries total about $122 billion.

Question 8

The total stock of debt for developing countries is:
A) $100 billion.
B) $500 billion.
C) $1 trillion.
D) $1.5 trillion.
E) $2.7 trillion.

Accepted Answer

As of my last update in 2023, the total stock of debt for developing countries far exceeds the options listed, with estimates often pointing to figures in the trillions of dollars. The closest and most accurate figure from the given options is $2.7 trillion, but it's important to note that actual figures can vary and are likely higher due to ongoing borrowing and adjustments in global economic conditions.

Question 9

The total stock of foreign exchange held by a country at any point in time is known as:
A) ODA.
B) equity.
C) FDI.
D) foreign reserves.
E) debt reserves.

Accepted Answer

Foreign reserves refer to the total of a country's foreign currency holdings, gold reserves, SDRs (Special Drawing Rights), and IMF reserve position. These assets are held by a country's central bank or monetary authority and are used to back liabilities and influence monetary policy.

Question 10

A _____ debt/export ratio will make it _____ for a country to make payments on its debt.
A) low, hard
B) high, easy
C) low, easy
D) negative, impossible
E) None of the above

Accepted Answer

A low debt/export ratio indicates that a country's debt is small relative to its export earnings, making it easier for the country to make payments on its debt.

Question 11

The inability of a country to repay all its foreign debt when it is due is known as:
A) debt.
B) equity.
C) default.
D) financial rift.
E) sovereign lending

Accepted Answer

Default occurs when a country cannot meet its foreign debt obligations, meaning it cannot pay back the money it owes by the due date.

Question 12

An exchange rate shock is usually caused by a _____ in the _____ of foreign exchange.
A) decrease, supply
B) increase, supply
C) decrease, demand
D) consistency, demand
E) disruption, demand

Accepted Answer

An exchange rate shock is typically caused by a decrease in the supply of foreign exchange, which can lead to a sudden and significant change in the exchange rate.

Question 13

An exchange rate shock will tend to cause a _____ shift of the _____ curve.
A) rightward, AS
B) leftward, AS
C) increase, AD
D) large, AD
E) small, AD

Accepted Answer

An exchange rate shock, such as a sudden appreciation or depreciation of the domestic currency, can affect the cost of imported goods and the competitiveness of exports. This can lead to changes in the aggregate supply (AS) curve. Specifically, if the domestic currency appreciates, making imports cheaper and exports more expensive abroad, it can lead to a leftward shift of the AS curve due to increased costs for domestic producers and reduced demand for exports. Conversely, a depreciation could have the opposite effect, but the question specifically mentions a shock, which typically implies a negative connotation, hence a leftward shift.

Question 14

Which of the following macroeconomic consequences would be associated with an exchange rate shock?
A) an increase in the price level
B) a decrease in the price level
C) an increase in real GDP
D) an increase in both the price level and real GDP
E) no change in the price level or real GDP

Accepted Answer

An exchange rate shock can lead to an increase in the price level due to the higher cost of imported goods and services, which contributes to inflation.

Question 15

Which of the following would not usually be associated with an exchange rate shock?
A) an increase in the price level
B) a decrease in real GDP
C) a leftward shift of the AS curve
D) an increase in real GDP
E) None of the above

Accepted Answer

An exchange rate shock typically leads to a decrease in real GDP due to the immediate impact on exports and imports, not an increase.

Question 16

An exchange rate shock would have much more serious consequences in a _____ country than in a _____ country.
A) developed, developing
B) developing, developed
C) high-income, low-income
D) high-income, middle-income
E) Asian, Latin American

Accepted Answer

Developing countries are generally more vulnerable to exchange rate shocks due to factors like less diversified economies, reliance on imports for essential goods, and weaker financial systems. Developed countries, with more diversified economies and stronger financial systems, can better absorb such shocks.

Question 17

Primary commodities account for approximately _____ percent of developing country exports.
A) 10
B) 27
C) 40
D) 60
E) 66

Accepted Answer

Primary commodities account for approximately 40 percent of developing country exports. This reflects the economic structure of many developing countries, which often rely heavily on the export of raw materials and agricultural products.

Question 18

Exports and imports account for _____ and _____ of the collective GDPs of the developing countries.
A) 9, 10
B) 14, 15
C) 31, 29
D) 42.6, 58.2
E) 50, 50

Accepted Answer

Exports and imports are significant components of the GDPs of developing countries, often accounting for a substantial portion due to their reliance on international trade for economic growth. The correct figures, 31% for exports and 29% for imports, reflect the importance of trade in their economies.

Question 19

A large drop in the price of a primary commodity would tend to cause a _____ shift in the supply of foreign exchange and a(n) _____ of the currency.
A) leftward, appreciation
B) leftward, depreciation
C) rightward, appreciation
D) rightward, depreciation
E) rightward, pegging

Accepted Answer

A large drop in the price of a primary commodity would lead to a decrease in the country's export revenues, reducing the supply of foreign exchange. This would typically cause the currency to depreciate, as there would be less demand for the currency on the global market.

Question 20

The demand for primary commodities is usually _____ .
A) elastic
B) inelastic
C) unit elastic
D) perfectly inelastic
E) not influenced by prices.

Accepted Answer

The demand for primary commodities is usually inelastic because consumers tend to buy these necessary goods (such as basic food items and raw materials) regardless of price changes.

Quiz 20: Capital Flows and the Developing Countries

On average, developing countries typically are _____ relative to developed countries.

For developing countries, current account _ tend to couple with financial account _ .

Borrowing by a country in the form of bonds or bank loans is known as:

Government borrowing from commercial banks is known as:

Borrowing by countries in the form of FDI or investment in stocks is known as:

A characteristic of _____ is that payments have to made at a certain point in time no matter what condition of the borrower.

Inflows of debt and equity to the developing countries total about:

The total stock of debt for developing countries is:

The total stock of foreign exchange held by a country at any point in time is known as:

A _ debt/export ratio will make it _ for a country to make payments on its debt.

The inability of a country to repay all its foreign debt when it is due is known as:

An exchange rate shock is usually caused by a _ in the _ of foreign exchange.

An exchange rate shock will tend to cause a _ shift of the _ curve.

Which of the following macroeconomic consequences would be associated with an exchange rate shock?

Which of the following would not usually be associated with an exchange rate shock?

An exchange rate shock would have much more serious consequences in a _ country than in a _ country.

Primary commodities account for approximately _____ percent of developing country exports.

Exports and imports account for _ and _ of the collective GDPs of the developing countries.

A large drop in the price of a primary commodity would tend to cause a _ shift in the supply of foreign exchange and a(n) _ of the currency.

The demand for primary commodities is usually _____ .