Question 1

A country has a balance of payments deficit if&#10;A) Export revenue is greater than import spending&#10;B) Export revenue equals import spending&#10;C) Export revenue is less than import spending&#10;D) Export revenue is greater than income

Accepted Answer

A balance of payments deficit occurs when a country's export revenue is less than its import spending, meaning it is buying more from other countries than it is selling to them.

Question 2

What do the terms of trade measure?&#10;A) The volume of exports compared to the volume of imports.&#10;B) Export prices compared to import prices.&#10;C) The value of your currency against other currencies.&#10;D) The government regulations to allow trade in a country.

Accepted Answer

The terms of trade measure the ratio of export prices to import prices. This indicates how much import goods a country can purchase for a unit of its exports, essentially measuring the country's trade competitiveness.

Question 3

What does the balance of payments measure?&#10;A) The spending on exports compared to the spending on imports.&#10;B) The volume of exports compared to the volume of imports.&#10;C) The value of your currency compared to the value of other currencies.&#10;D) The value of the domestic money supply compared to the international money supply.

Accepted Answer

The balance of payments measures the spending on exports compared to the spending on imports, reflecting all economic transactions between residents of a country and the rest of the world.

Question 4

What is likely to happen if the value of the currency falls?&#10;A) The prices of imports are likely to fall.&#10;B) The volume of imports is likely to rise.&#10;C) The price of exports abroad is likely to fall.&#10;D) The volume of exports is likely to fall.

Accepted Answer

When the value of a currency falls, it becomes cheaper for other countries to buy goods priced in that currency, making exports more competitive and potentially increasing their demand. This does not directly cause the price of exports to fall; instead, it makes them more affordable to foreign buyers due to the currency value change. Choices A, B, and D are incorrect because a weaker currency typically makes imports more expensive (not cheaper as in A), which could reduce the volume of imports (contrary to B), and is likely to increase the volume of exports (opposite of D) due to their now lower relative price abroad.

Question 5

What does the J curve show?&#10;A) It shows how the current account may worsen in the short term following a depreciation of the currency.&#10;B) It shows how the current account may worsen in the short term following an appreciation of the currency.&#10;C) It shows how the budget deficit can worsen over time.&#10;D) It shows how the currency can fall and rise over time.

Accepted Answer

The J curve illustrates how a country's trade balance initially worsens after its currency depreciates because the prices of imports rise faster than the quantities adjust, but improves in the long term as the quantities adjust.

Question 6

When does free trade occur?&#10;A) It occurs when there are no transportation costs.&#10;B) It occurs when a government pays for the imports.&#10;C) It occurs when there are barriers to entry.&#10;D) It occurs when there are no barriers to trade.

Accepted Answer

Free trade occurs when there are no barriers to trade, such as tariffs, quotas, or other restrictions, allowing goods and services to move freely between countries.

Question 7

When there is a balance of payments deficit it means government spending is more than government revenue

Accepted Answer

A balance of payments deficit occurs when a country imports more goods, services, and capital than it exports, and is not directly related to the difference between government spending and government revenue, which pertains to fiscal policy and budget deficits.

Question 8

In a floating exchange rate the government intervenes in the currency market to stabilise the value of the currency.

Accepted Answer

In a floating exchange rate system, the value of the currency is determined by the foreign exchange market through supply and demand, with minimal or no government intervention.

Question 9

A reduction in government spending is an example of an expenditure reducing policy.

Accepted Answer

A reduction in government spending directly decreases the amount of money the government is disbursing, which is the essence of an expenditure reducing policy.

Question 10

Tariffs and quotas are used to improve the balance of payments. These are known as expenditure ___________________ policies.

Accepted Answer

The answer of Tariffs and quotas are used to improve...

Question 11

The value of a country's exports measures the value of goods and services that it buys from abroad.

Accepted Answer

The answer of The value of a country's exports measures...

Question 12

Which of the following is a demand reducing policy?&#10;A) Lower interest rate&#10;B) Lower direct taxes&#10;C) Higher subsidies&#10;D) Higher income tax

Accepted Answer

The answer of Which of the following is a demand...

Question 13

Which of the following is not a form of protectionism?&#10;A) Embargo&#10;B) Specialisation&#10;C) Tariff&#10;D) Quota

Accepted Answer

The answer of Which of the following is not a...

Question 14

A tax on imports is also known as:&#10;A) An embargo&#10;B) A quota&#10;C) A tariff&#10;D) A ban

Accepted Answer

The answer of A tax on imports is also known...

Question 15

This account records payments of flows associated with the disposal of assets, the transfer of funds by migrants, and the payment of grants by governments for overseas projects. It is known as the _________________ account

Accepted Answer

The answer of This account records payments of flows associated...

Deck 29: Government Objectives: Achieving a Favourable Trade Position