Question 1

Which of the following would increase the current account of Country X? Country Y is Country X's sole trading partner.

Accepted Answer

The answer of Which of the following would increase the...

Question 2

A weakening of the U.S. dollar with respect to the British pound would likely reduce U.S. exports to the U.K. and increase U.S. imports from the U.K.

Accepted Answer

A weakening U.S. dollar makes U.S. goods cheaper for the U.K., likely increasing U.S. exports, while making U.K. goods more expensive for the U.S., likely reducing U.S. imports.

Question 3

Which of the following is not a goal of the International Monetary Fund (IMF)?

Accepted Answer

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

Question 4

Which of the following factors probably does not directly affect a country's capital account and its components?

Accepted Answer

Inflation does not have a direct impact on a country's capital account and its components. Capital account primarily deals with investments and financial flows, which may be affected by interest rates, withholding taxes on foreign income, and exchange rate movements, but not by inflation.

Question 5

The ____ is the difference between exports and imports.

Accepted Answer

The balance of trade is the calculation of a country's exports minus its imports. It is also known as the trade balance.

Question 6

The World Bank extends loans only to developed nations, while the International Development Association (IDA) extends loans only to developing nations.

Accepted Answer

The World Bank and its subsidiaries provide loans to both developed and developing countries. The International Development Association specifically provides concessional loans and grants to the world's poorest countries.

Question 7

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.

Accepted Answer

The "J curve effect" suggests that after a currency depreciation, the current account balance initially worsens (decreases) due to higher import costs and existing contracts, but improves (increases) over time as exports become cheaper and more competitive globally.

Question 8

Which of the following is not likely to represent a strategy by the government of Country X to reduce its balance of trade deficit with Country Y?

Accepted Answer

Removing a tariff on goods imported from Country Y would likely increase imports, potentially worsening the trade deficit rather than reducing it.

Question 9

The capital account reflects changes in country ownership of long-term (but not short-term) assets.

Accepted Answer

The answer of The capital account reflects changes in country...

Question 10

____ represent aid, grants, and gifts from one country to another.

Accepted Answer

Transfer payments represent aid, grants, and gifts from one country to another, such as foreign aid, disaster relief or remittances. Factor income refers to the income earned from factors of production, such as labor or land, in international trade. The balance of trade measures the difference between a country's exports and imports. The balance of payments is a record of all financial transactions between a country and the rest of the world. The capital account records all transactions involving the transfer of capital, such as the purchase or sale of assets.

Question 11

A balance of trade deficit indicates an excess of imports over exports.

Accepted Answer

A balance of trade deficit means that a country is importing more goods and services than it is exporting, causing an imbalance in its trade relationships with other nations.

Question 12

The ____, an accord among 117 nations, called for lower tariffs around the world.

Accepted Answer

The General Agreement on Tariffs and Trade (GATT) was a trade agreement signed by 117 countries in 1947 with the goal of reducing tariffs and other barriers to international trade. It was later replaced by the World Trade Organization (WTO) in 1995.

Question 13

Which of the following statements is not true?

Accepted Answer

Exporters actually benefit from a weak currency because it makes their products cheaper and more competitive on the global market. Therefore, the statement is incorrect.

Question 14

Outsourcing allows some MNCs to reduce costs but shifts jobs to other countries.

Accepted Answer

Outsourcing involves the transfer of jobs or tasks to other countries that often have lower labor costs. This can allow MNCs to reduce their costs, but it also means that jobs are shifted to other countries, resulting in job losses in the home country. So, the statement is true.

Question 15

Which of the following will probably not result in an increase in a country's current account balance (assuming everything else constant)?

Accepted Answer

An appreciation of the country's currency makes exports more expensive and imports cheaper, likely reducing the current account balance.

Quiz 2: International Flow of Funds