question

Why is a current account surplus equivalent to foreign investment?

answer

A current account surplus leads to the net accumulation of foreign assets

question

Which of the following are recorded as credits, in the current account?

answer

Transfers received; Exports; Income received from foreign investments

question

3.If the residents of a country receive income from their foreign investments, it is counted as a

answer

credit in the current account

question

Capital controls are most often aimed at slowing or eliminating movements of

answer

foreign portfolio investment

question

Suppose the Japanese interest rate is 1% while the interest rate in Britain is 3%. Interest rate parity that relative to the Japanese Yen,

answer

the British pound will depreciate by 2%

question

Purchasing Power Parity implies that in

answer

the long run, a given amount of money can buy the amount of goods, whether they are purchased at home or abroad.

question

People sometimes worry that American trade with other countries will lead to large U.S trade deficits and the movement of massive amounts of American capital out of the country. This worry is unfounded because countries cannot:

answer

have both current account and financial account deficits at the same time

question

Based on 2007 date, currency markets ranked by size (largest to smallest in terms of trades) begin with the order:

answer

1.U.S dollar, 2.EU Euro, 3. Japanese Yen

question

Under a gold standard, countries should

answer

keep the supply of their domestic money fixed in proportion to their gold holdings

question

The difference between GNP and GDP is

answer

GNP includes income received from abroad and excludes income paid abroad.

question

Suppose the exchange rates between the United States and Canada are in long-run equlibrium as defined by the idea of purchasing power parity. If the law of one price holds perfectly, then differences between U.S and Canadian rates of inflation would:

answer

be completely offset by changes in the nominal exchange rate.

question

The Bretton Woods exchange rate system was an example of a

answer

modified gold standard

question

If U.S. consumers increase their demand for foreign products and foreign travel, the U.S. dollar would tend to depreciate as more dollars are supplied to foreign exchange markets

answer

True

question

If consumption spending increases because people feel more confident about the future,

answer

aggregate demand will shift to the right

question

When spending and incomes in an economy increase,

answer

imports are likely to increase

question

When there is a cut in income taxes, the price level will

answer

increase and the GDP will increase

question

When there is an increase in military spending, the price level will

answer

increase and GDP will increase

question

When there is a change in government spending or taxes to affect aggregate economic activity, this is referred to as

answer

fiscal policy

question

When the money supply is changed to affect aggregate economic activity, this is referred to as

answer

monetary policy

question

True or False:The president and Congress conduct fiscal policy and the Federal reserve conducts monetary policy

answer

True

question

Which of the following occurs when there is an expansionary fiscal policy?

answer

Expansionary fiscal policy causes income and consumption to increase, which raises money demand and causes interest rates to rise. There is an outflow of foreign funds, which causes the exchange rate to fall, making foreign goods cheaper and results in current account deficits.

question

Which of the following occurs when there is an contractionary monetary policy?

answer

Contractionary monetary policy increases interest rates and reduces demand for goods (both domestic and foreign) but causes domestic currency to appreciate. Therefore, the effect on the current accounts is ambiguous.

question

If a country implements an contractionary monetary policy, the short to medium term effects include

answer

An increase in the country's interest rate and an appreciation of the country's currency

question

In a crisis not caused by macroeconomic imbalances, economists are uncertain whether a country should try to guard against recession or try to defend its currency. Which of the following is a pro for guarding against recession?

answer

If policymakers decide to defend the economy by reducing interest rates, this should help stabilize spending and raise output in the economy.

question

Which of the following is con for defending a country's currency?

answer

If policymakers decide to defend the economy by reducing interest rates,they would be sending the country into a recession

question

Which of following represents a moral hazard problem with international financial crisis response?

answer

Responding to a crisis with a lender of last resort institution invites risker behavior because investors and the country in crisis know that they will be bailed out.

question

In a banking crisis, disintermediation occurs as banks

answer

Lose their ability to intermediate between savers and borrowers

question

When the federal reserve does an open market operation to increase the U.S. money supply it

answer

buys bonds from individuals and financial institutions

question

Fiscal policy is

answer

the selling of government bonds by the Treasury the deliberate manipulation of the money supply designed to affect the interest rate the deliberate manipulation of taxation and spending designed to affect the ecnoomy the selling of foreign exchange reserves designed to change the exchange rate

question

The global economic crisis that started in 2007 had its origins in the development of global imbalances after 2000 between

answer

high-saving countries and high-consumption countries

question

When aggregate demand increases,

answer

the price level is likely to rise as GDP rises.

question

Which of the following is/are examples of expansionary fiscal policy?

answer

An increase in government spending.

question

The Basel Accord and Basel II endeavor to improve banking practices by recommending best practices for

answer

capital requirements information disclosure supervisory review

question

Which of the following best characterizes the economic growth in Latin America from

answer

Countries tended to be focused on inward development, have unequal distribution of income and were unstable.

question

__________________ is an economic development strategy that uses industrial policies to target industries producing import competing goods. The goal of this policy is to develop the industrial capacity of the economy.

answer

Import substitution industrialization

question

Which of the following is not a method of creating industrial policies?

answer

Taxing exported goods

question

Which of the following was a trade reform in Latin America in the late 1980s and 1990s

answer

The creation of new trade blocs such as NAFTA and the revitalization of old ones such as the Central American Common Market

question

The 1980s are referred to as the "Lost Decade". This is because Latin America countries in the 1980s experienced

answer

negative growth, rapid inflation and increased poverty.

question

Structural reform focuses on

answer

making resources allocation more efficient by privatizing state enterprises, liberalizing trade and improving the regulatory environment

question

Which of the following statements is false regarding economic growth in the HPAE compared with economic growth of Latin America

answer

Latin America has reduced income inequality through investment in primary and secondary education, land reform, and the creation of rural infrastructure such as roads, water and sanitation systems, and health care.

question

How can passage through a demographic transition lead to higher savings and investment rates?

answer

Passage through the demographic transition increases the ratio of economically active to the total population. This creates a larger pool of income out of which savings and investment cam take place.

question

Which of the following is a pro for the East Asian industrial policies following the growth in the HPAE?

answer

With the industrial policies, manufacturing in general and manufactured exports experienced enormous growth.

question

9.The economoic success of high performance Asian economies was supported by

answer

health and education policies that helped workers become more skilled strong and credible commitments to share the benefits of growth across society stable macroeconomic policies

question

Which changes in education policies helped the high-performance Asian economies succeed in export promotion?

answer

Additional resources focused on elementary and secondary education

question

The Washington Consensus, includes a number of microeconomics prescription which encourage countries to

answer

encourage foreign investment secure property rights privatize state owned enterprises in cases where markets function

question

High-performance Asian economics chose trade policies that had some common features.What were the similarites?

answer

Compared to other developing countries, they promoted exports but were relatively open to imports

question

The Washington Consensus, had a number of macroeconomic guidelines. They include

answer

the reduction of taxes, with taxes levied on a wider set of economic activities

question

"Demographic transition" refers to the switch from high birth rates and high death rates to

answer

low birth rates and low death rates experienced during modernization.

question

Fiscal discipline helps countries to stimulate investment and to reduce capital flight by

answer

increasing the government credibility, and therefore increasing investor confidence

question

If Korea grows at 10% a year, how many years will it take from Korean GDP to double?

answer

7.2 years

question

Which of the following best describes the process of Chinese reforms from their begining in 1978 until Chinas accession to WTO?

answer

Initial reforms were made in agriculture, followed by the creation of special economic zones, and finally a lengthy period of negotiations that solidified China's commitment to am open economy.

question

Which of the following was not among the factors that led to economic reform in India?

answer

A political revolt led by Indian entrepreneurs

question

The key elements of Indian economic reforms included

answer

revisions to the Indian permitting process the denationalization of many industries abandonment of import substitution industrialization policies

question

The sources of China's comparative advantage include all of the following except

answer

advanced technology

question

The sources of China's comparative advantage are evident in the types of goods it exports. These are dominated by

answer

Low technology goods High technology goods that are assembled from imported parts.

question

Factors that make India competitive in business services and computer and information services include

answer

The country's consistent emphasis on higher education and technology abudant supplies of English speaking engineers and technicans the advent of the telecommuniations revolution

question

True or False: Japan and China have accumulated enormous amounts of US dollar reserves.

answer

True

question

True or False: China continued to engage in foreign exchange intervention after the currency regime change in order to prevent it currency from appreciating significantly.

answer

True

question

By 2007, developments in Chinese trade resulted in China having a current account

answer

Surplus with U.S and current account deficits with Japan and the EU

question

Chinas comparative advantage in manufacturing industries is helped by

answer

good transporation and port infrastructure on the coasts Chinas low wages

question

Since the mid-1990's there has been a large expansion in services outsourcing to India in information and the computer serices sectors. This development

answer

increases the productivity of US firms, as their cost of operations goes down

question

India's growing presence in the provision of services trade has been supported by

answer

the telecommunications revolution Indias emphasis on technology and education, that has led to a large number of educated workers the ability of many of its workers to speak English

question

Since the mid-1990's there has been a large expansion in services outsourcing to India in information and the computer serices sectors. This development

answer

increases the productivity of US firms, as their cost of operations goes down

question

India's growing presence in the provision of services trade has been supported by

answer

the telcommunications revolution indias emphasis on technology and education, that has led to a large number of educated workers the ability of many of its workers to speak English

question

Recent Chinese trade and foreign direct investment into China

answer

Lead to an inflow of dollars, which creates pressure for the Renminibi to appreciate

question

By the late 2000's, China's foreign reserve holdings were

answer

fostered by China's trade surpluses fostered by foreign direct investment inflows to China the largest of any country in the world.

question

At present, China produces a number of high technology products. This ability is due to

answer

the presence of many multinational firms producing in China

question

Economies that abandon socialism or communism in favor of market based systems are referred to as:

answer

transition economies

question

Reforms of the chinese economy in the 1980's began with reform

answer

in the agricultural sector, followed later by reforms implemented in Special Economic Zones, Economic and Technology Development Zones, and High Technology Development Zones.

question

record of the goods and services into and out of the country.....

answer

Current account

question

record of the flow of financial capital to and from the country

answer

Financial account

question

record of some specialized types of relatively small capital flows

answer

Capital account

question

The international transactions of a nation are divided into three separate accounts

answer

Current account;Financial account; Capital account

question

measures the difference between exports and imports of goods and services:

answer

trade balance

question

Exports - Imports=

answer

TRADE BALANE

question

negative trade balance

answer

Trade deficit

question

primary record of the international flow of financial capital and other assets

answer

financial and capital accounts

question

The sum of the capital and financial accounts is equal in absolute value__________________ but with the opposite sign.

answer

to the current account

question

The price of currency that will be delivered in the future;

answer

Forward exchange rate

question

A market in which the buying and selling of currencies for future delivery takes place; important mechanism for exporters, importers, financial investors, and speculators

answer

Forward market

question

Buying and selling of foreign currencies in the present

answer

Spot market:

question

The value of a nation's money is defined in terms of a fixed amount of a commodity

answer

Fixed exchange rate system

question

The value of the currency is allowed to float up and down with market forces

answer

Flexible (floating) exchange rate system

question

The purpose of___________________ is to stabilize the economy and permit stimulation and dampening actions to maintain a healthy economy

answer

macroeconomic policy tools

question

The purpose of macroeconomic policy tools is to stabilize the economy and permit stimulation and dampening actions to maintain a healthy economy with:

answer

- Real growth - Low inflation - Low unemployment

question

Is the deliberate manipulation of government spending and taxes in order to affect aggregate economic activity. Congress and the President conduct it.

answer

Fiscal policy

question

is conducted by the central bank of a country and involves changes in the money supply to achieve desired macroeconomic goals.

answer

Monetary policy

question

could be prevented through a reform of the international financial architecture

answer

Financial crises

question

crises do not conform to a single pattern, and are thus difficult to predict

answer

Contagion effects

question

A source of loanable funds after all commercial sources of lending become unavailable

answer

Lender of last resort

question

based on the ideas of John Maynard Keynes, influenced macroeconomic policy in Western nations from WWII to the late 1970s;

answer

Keynesian school of economics

question

has been considered outside the mainstream, but its reputation rose after Austrian economist Friedrich Hayek received the Nobel Prize in 1974.

answer

Austrian school of economics

question

measurements of income are a way to make international comparisons by correcting for national differences in prices of goods and services

answer

Purchasing Power Parity

question

Under________ labor and environmental standards are not harmonized, but regulated via side agreements;

answer

NAFTA

question

Con of NAFTA side agreements:

answer

Protectionism

question

Pro of NAFTA side agreements:

answer

Formal Complaints

question

The most important determinant of the number of jobs in a country is

answer

macroeconomic policy

question

Benefits of Monetary Union

answer

Eliminates the costs of currency conversions Reduces the effects of exchange rate uncertainty on trade and investment

question

Costs of Monetary Union

answer

Eliminates monetary policy independence If labor is not fully mobile and business cycles synchronised between nations, the same monetary policy may not suit all nations

question

The Four Tigers

answer

the two city-states of Hong Kong and Singapore, Korea, and Taiwan

Economics Exam 2 review – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards