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The Balance of Payments is best defined as:
An account of the government revenues and expenditures
Total spending and income generated in an economy
An account of payments to and receipts from the rest of the world
Value of exports of visibles minus the value of imports of visibles

Which one of the following scenarios demonstrates that the BoP is in equilibrium?
The current account is in deficit and the financial account in surplus. Overall there is a minor surplus one year offset by a minor deficit the following year. This patterns repeats itself.
The current account is close to zero over a long period of time
The country is the highest world recipient of Foreign Direct Investment over a long period of time.
The current account has a significant surplus over a long period of time.

A Korean tourist travels to Bangladesh on Emirates Airlines. From this transaction, which statement correctly describes what will happen to the BoP of involved countries. More than one answer may be right.
A deficit entry for Korea on the invisible account of the current account and a corresponding surplus entry on the invisible account of Bangladesh.
A surplus entry for Bangladesh on the invisible account of the current account and a corresponding surplus entry on the invisible account of Bangladesh.
A deficit entry for Korea on the financial account and a corresponding surplus entry on the financial account of the Emirates.
A deficit entry for Korea on the invisible account of the current account and a corresponding surplus entry on the invisible account of the Emirates.

An American food company buys out a British chocolate company. What entries are recorded on the BoP?
A deficit entry on US invisible account and a surplus entry on the UK invisible account.
A surplus entry on US invisible account and a deficit entry on the UK invisible account.
A deficit entry on US financial account and a surplus entry on the UK financial account.
A surplus entry on US financial account and a deficit entry on the UK financial account.

Which one of the following is likely to improve the BoP of country Z in the long-term?
A deficit now on the financial account
A deficit now on the visible account
A deficit now on the income account
A deficit now on the invisble account

A country has a floating exchange rate system. The BoP is in deficit since imports rose dramatically. What would you expect to happen and why?
The exchange rate would depreciate since demand for the home currency would fall.
The exchange rate would appreciate since demand for the home currency would fall.
The exchange rate would depreciate since supply of the home currency would increase.
The exchange rate would depreciate since demand for foreign currency would rise.

A country has a floating exchange rate system. The BoP is in surplus since exports rose dramatically. What would you expect to happen and why?
The exchange rate would appreciate since demand for the home currency would fall.
The exchange rate would appreciate since demand for the home currency would rise.
The exchange rate would appreciate since supply of the home currency would fall.
The exchange rate would appreciate since supply of the foreign would fall.

Which of the following changes would cause an increase in demand for a country's currency and a fall in supply of it?
A rise in demand for exports
A fall in imports into the country
More Foreign Direct Investment into the country
A rise in interest-rates relative to other countries

The Financial Account experiences an improvement as more foreign firms invest in country A. What happens to the currency value if there is a floating exchange rate and why?
The exchange rate would appreciate since demand for the home currency would rise.
The exchange rate would appreciate since supply of the home currency would rise.
The exchange rate would depreciate since demand for the home currency would fall.
The exchange rate would depreciate since supply of the home currency would rise.

Speculators expect the Monetary Policy Committee to raise interest-rates after one month. What would you expect to happen to the value of the exchange rate now.
Nothing since the Committee has not yet increased interest-rates.
The exchange rate would rise as speculators buy the home currency in anticipation.
The exchange rate would fall as speculators sell the home currency in anticipation.
The interest-rate is not relevant to the exchange rate. The exchange is only affected by BoP changes.

If the country has a deficit on the BoP and a fixed exchange rate, what would you expect to happen next?
The Central Bank will buy foreign currency and sell the home currency as an open market operation.
The Central Bank does not need to do anything since the currency is fixed in value.
The Central Bank will sell foreign currency and buy the home currency as an open market operation.

If the country has a surplus on the BoP and a fixed exchange rate, what would you expect to happen next?
The Central Bank will buy foreign currency and sell the home currency as an open market operation.
The Central Bank does not need to do anything since the currency is fixed in value.
The Central Bank will sell foreign currency and buy the home currency as an open market operation.

A country fixes its currency at a lower value than the market price. What would be evidence of this?
Falls in national income
High unemployment
A running down of foreign reserves
A large build up of foreign reserves.

A country has persistent deficits on the BoP. Which policy or set of policies would help reduce the negative impact of depreciation in the long-term?
Increasing the interest-rates
Supply-side policies designed to improve productivity
Reflationary fiscal policy
Deflationary fiscal policy

A country wishes to improve their Balance of Payments. Which policy would work when demand for exports and demand for imports are relatively elastic (combined elasticities > 1)
Devaluation of the currency
Revaluation of the currency (higher currency value)
Raising interest-rates

A country wishes to improve their Balance of Payments. Which policy would work when demand for exports and demand for imports are relatively inelastic (combined elasticities < 1)
Devaluation of the currency
Decreasing interest-rates
Revaluation of the currency (higher value)

What factor or combinations of factors could be a underlying cause of a Balance of Payments disequilibrium that has continued for several years?
A spike in inflation caused by sudden political instability
An unexpected decision by the government to spend less on subsidies to home firms
The collapse of a leading export firm
A relatively high propensity to import combined with sustained economic growth

A country devalues the currency and the Balance of Payments worsens in the first six months. However after that, the Balance of Payments improves without any other policies being adopted. What theory might explain this phenomenon?
The Phillips curve
The J-curve effect
The Prebisch-Singer hypothesis that explains the long-term decline in the terms of trade of developing countries.
A high propensity to import

A country joins a single currency club. What might be an advantage of this?
The removal of tariff barriers
The necessity of having a single monetary policy regardless of economic conditions
The necessity of having a single fiscal policy regardless of economic conditions
Lower transactions costs for firms trading within the club

A country joins a single currency club. What might be an disadvantage of this?
The removal of tariff barriers
The necessity of having a single fiscal policy stance regardless of economic conditions
The necessity of having a single monetary policy stance regardless of economic conditions
Lower transactions costs for firms trading within the club

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Experienced teacher of micro- and macro-economics

Tests Created: 11

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