Question 1

Which one of the following defines the international trade multiplier?

Accepted Answer

The international trade multiplier refers to the process by which a change in the national income of one country (country A) leads to a proportionate change in the national income of another country (country B), through an increase in exports to the first country. This concept highlights the interconnectedness of economies and how economic activities in one country can have ripple effects on others.

Question 2

Speculators would move their money into a country which had ___fiscal policy and ___ monetary policy.

Accepted Answer

Speculators are likely to move their money into a country with an expansionary fiscal policy, which can stimulate economic growth, and a tight monetary policy, which can lead to higher interest rates and attract foreign investment.

Question 3

Speculators would move their money out of a country which had a current account ___and a ___
Monetary policy.

Accepted Answer

Speculators would move their money out of a country with a current account deficit and a relaxed monetary policy because the deficit indicates economic weakness, and a relaxed monetary policy could lead to inflation and currency depreciation, reducing the value of their investments.

Question 4

The effect of changes in imports or exports of one country on the national income of another country is called

Accepted Answer

The international trade multiplier refers to the effect of changes in imports or exports of one country on the national income of another country. It is a concept in economics that explains how an increase or decrease in the trade activity (exports or imports) of one country can lead to proportional increases or decreases in the income levels of another country, through the mechanism of increased or decreased demand for goods and services.

Question 5

The most likely result of the US raising interest rates is that it would ___its trade deficit and interest rates in other countries would  ___	.

Accepted Answer

Raising interest rates in the US typically strengthens the US dollar, making imports cheaper and exports more expensive, potentially decreasing the trade deficit. Higher US interest rates can also lead to higher interest rates in other countries as they adjust their rates to maintain competitive investment environments.

Question 6

If the European Central Bank cuts interest rates and the Bank of England does not, it is likely that the value of the £ will  ___and the UK trade deficit will ___.

Accepted Answer

When the European Central Bank cuts interest rates, it typically makes the euro less attractive to investors compared to currencies with relatively higher interest rates, such as the pound in this scenario. As a result, the value of the pound (£) is likely to rise. A stronger pound makes imports cheaper and exports more expensive, potentially leading to an increase in the UK's trade deficit as the country buys more from abroad and sells less.

Question 7

The term 'beggar- my- neighbour policies' is usually applied to

Accepted Answer

Beggar-my-neighbour policies refer to economic policies that a country enacts to address its own economic problems, often at the expense of other countries, without considering the negative impact on international relations or the global economy.

Question 8

When countries diverge, then their exchange rates tend to change. Which of the following divergences will not quickly lead to changes in exchange rates?

Accepted Answer

Divergences in growth rates, interest rates, and inflation rates among countries can quickly lead to changes in exchange rates due to their direct impact on investment flows, purchasing power, and overall economic health. However, changes in the unemployment rate do not lead to quick adjustments in exchange rates because they are a lagging indicator of economic health and do not directly influence investor behavior or currency values in the short term.

Question 9

When countries achieve similar levels of growth, inflation and budget deficits, this is called

Accepted Answer

Convergence refers to the phenomenon where countries achieve similar levels of economic growth, inflation, and budget deficits, often as a result of deliberate policy measures or economic integration processes.

Question 10

Assume that the world is suffering from a recession. Which of the following policies adopted by country A would benefit other countries?

Accepted Answer

The answer of Assume that the world is suffering from...

Question 11

Assume that the US economy expands and that the US Federal Reserve Bank, worried by rising inflation, decides to raise interest rates. Which of the following would not occur?

Accepted Answer

When the US Federal Reserve raises interest rates, it typically leads to an appreciation of the US dollar and can cause capital to flow into the US from other countries seeking higher returns. This can put upward pressure on interest rates in other countries as they might raise rates to prevent capital outflows or to maintain the attractiveness of their own currencies. Therefore, it is not expected that interest rates in other countries will fall as a direct consequence of the Fed raising rates.

Question 12

The G8 countries are

Accepted Answer

The G8 includes Canada, France, Germany, Italy, Japan, the United Kingdom, the United States, and Russia, making option A correct.

Question 13

Which was the last country to join the G8?

Accepted Answer

Russia was the last country to join the G8, making it the G8 in 1997. Before Russia's inclusion, it was known as the G7.

Question 14

In 1987 the G7 countries responded to pressure on the dollar caused by US budget and trade deficits by agreeing to what was known as the Louvre Accord. This did not provide for

Accepted Answer

The answer of In 1987 the G7 countries responded to...

Question 15

If countries attempt to achieve similar rates of economic growth through demand management policy, for which of the following reasons may the equilibrium rate of exchange change over the longer term?
 (i) The marginal propensity to import differs from one country to another.
(ii) The relative income elasticities of demand for imports and exports differ from one country to another.
(iii) The rate of growth of productivity differs from one country to another.

Accepted Answer

(i) Differences in the marginal propensity to import can lead to variations in the demand for foreign currencies, affecting exchange rates. (ii) If the income elasticity of demand for imports and exports varies, it can change the trade balance and influence exchange rates. (iii) Divergent productivity growth rates can alter competitive positions and trade balances, impacting exchange rates.

Question 16

The EC arrangement which aimed to create currency stability, monetary co- operation and the convergence of economic policies, starting in 1979, was called

Accepted Answer

The European Monetary System (EMS) was established in 1979 to foster monetary stability and economic convergence among member states of the European Community (EC), aiming for currency stability and closer monetary cooperation.

Question 17

The EMS was an EC arrangement which started in 1979, and aimed to create currency stability, monetary co- operation and the convergence of economic policies. It had what economists call ___  exchange rate mechanism.

Accepted Answer

The EMS (European Monetary System) utilized an adjustable peg exchange rate mechanism, which allowed currencies to fluctuate within a narrow band around a central rate, but with the possibility of adjusting this central rate in case of economic imbalances.

Question 18

Why did the UK leave the European Exchange Rate Mechanism (ERM) in 1992?

Accepted Answer

The UK left the ERM in 1992 primarily due to massive speculation against the pound, which made it unsustainable for the UK to maintain its currency within the agreed limits of the ERM.

Question 19

The UK was a member of the European Exchange Rate Mechanism (ERM) from  ___to ___  .

Accepted Answer

The UK was a member of the European Exchange Rate Mechanism (ERM) from October 1990 until September 1992, a period that ended with the UK's withdrawal on what is known as Black Wednesday.

Question 20

Which of the following is not a reason for the vulnerability of the European Exchange Rate Mechanism (ERM) to speculation in the period from 1990 to 1993?

Accepted Answer

The Maastricht Treaty, signed in February 1992, primarily laid the groundwork for the creation of the euro and did not directly contribute to the vulnerability of the ERM to speculation. The other options (A, B, and D) directly relate to economic conditions that could influence speculation within the ERM.

Quiz 32: International Economic Policy

Which one of the following defines the international trade multiplier?

Speculators would move their money into a country which had _fiscal policy and _ monetary policy.

Speculators would move their money out of a country which had a current account _and a _ Monetary policy.

The effect of changes in imports or exports of one country on the national income of another country is called

The most likely result of the US raising interest rates is that it would _its trade deficit and interest rates in other countries would _ .

If the European Central Bank cuts interest rates and the Bank of England does not, it is likely that the value of the £ will _and the UK trade deficit will _.

The term 'beggar- my- neighbour policies' is usually applied to

When countries diverge, then their exchange rates tend to change. Which of the following divergences will not quickly lead to changes in exchange rates?

When countries achieve similar levels of growth, inflation and budget deficits, this is called

Assume that the world is suffering from a recession. Which of the following policies adopted by country A would benefit other countries?

Assume that the US economy expands and that the US Federal Reserve Bank, worried by rising inflation, decides to raise interest rates. Which of the following would not occur?

The G8 countries are

Which was the last country to join the G8?

In 1987 the G7 countries responded to pressure on the dollar caused by US budget and trade deficits by agreeing to what was known as the Louvre Accord. This did not provide for

The EC arrangement which aimed to create currency stability, monetary co- operation and the convergence of economic policies, starting in 1979, was called

The EMS was an EC arrangement which started in 1979, and aimed to create currency stability, monetary co- operation and the convergence of economic policies. It had what economists call ___ exchange rate mechanism.

Why did the UK leave the European Exchange Rate Mechanism (ERM) in 1992?

The UK was a member of the European Exchange Rate Mechanism (ERM) from _to _ .

Which of the following is not a reason for the vulnerability of the European Exchange Rate Mechanism (ERM) to speculation in the period from 1990 to 1993?

Quiz 32: International Economic Policy

Which one of the following defines the international trade multiplier?

Speculators would move their money into a country which had ___fiscal policy and ___ monetary policy.

Speculators would move their money out of a country which had a current account ___and a ___ Monetary policy.

The effect of changes in imports or exports of one country on the national income of another country is called

The most likely result of the US raising interest rates is that it would ___its trade deficit and interest rates in other countries would ___ .

If the European Central Bank cuts interest rates and the Bank of England does not, it is likely that the value of the £ will ___and the UK trade deficit will ___.

The term 'beggar- my- neighbour policies' is usually applied to

When countries diverge, then their exchange rates tend to change. Which of the following divergences will not quickly lead to changes in exchange rates?

When countries achieve similar levels of growth, inflation and budget deficits, this is called

Assume that the world is suffering from a recession. Which of the following policies adopted by country A would benefit other countries?

Assume that the US economy expands and that the US Federal Reserve Bank, worried by rising inflation, decides to raise interest rates. Which of the following would not occur?

The G8 countries are

Which was the last country to join the G8?

In 1987 the G7 countries responded to pressure on the dollar caused by US budget and trade deficits by agreeing to what was known as the Louvre Accord. This did not provide for

The EC arrangement which aimed to create currency stability, monetary co- operation and the convergence of economic policies, starting in 1979, was called

The EMS was an EC arrangement which started in 1979, and aimed to create currency stability, monetary co- operation and the convergence of economic policies. It had what economists call ___ exchange rate mechanism.

Why did the UK leave the European Exchange Rate Mechanism (ERM) in 1992?

The UK was a member of the European Exchange Rate Mechanism (ERM) from ___to ___ .

Which of the following is not a reason for the vulnerability of the European Exchange Rate Mechanism (ERM) to speculation in the period from 1990 to 1993?

Speculators would move their money into a country which had _fiscal policy and _ monetary policy.

Speculators would move their money out of a country which had a current account _and a _ Monetary policy.

The most likely result of the US raising interest rates is that it would _its trade deficit and interest rates in other countries would _ .

If the European Central Bank cuts interest rates and the Bank of England does not, it is likely that the value of the £ will _and the UK trade deficit will _.

The UK was a member of the European Exchange Rate Mechanism (ERM) from _to _ .