Master International Economics: Balance of Payments, Exchange Rates, and Trade

Question 1

An appreciation of the pound sterling in relation to the euro will make UK exports:

Accepted Answer

More expensive

Answer

Cheaper

Answer

Unaffected

Question 2

Which trade policy aims to shield domestic industries from foreign competition by restricting imports?

Accepted Answer

Protectionism

Answer

Free trade

Answer

Mercantilism

Answer

Comparative advantage

Question 3

According to the theory of comparative advantage, countries should focus on producing goods:

Accepted Answer

For which they have a comparative advantage

Answer

For which they have an absolute advantage

Answer

Irrespective of their production costs

Answer

In which they are most efficient

Question 4

Which measure reflects the overall level of prices in an economy?

Accepted Answer

Consumer price index

Answer

Inflation rate

Answer

Gross domestic product

Answer

Exchange rate

Question 5

Which component of the balance of payments specifically tracks the value of goods imported and exported?

Accepted Answer

Current account

Answer

Capital account

Answer

Financial account

Answer

Reserve account

Question 6

Which government-imposed measure increases the cost of imported goods?

Accepted Answer

Import tariff

Answer

Export subsidy

Answer

Domestic production tax

Answer

Foreign investment regulation

Question 7

The primary function of the World Trade Organization (WTO) is to:

Accepted Answer

Promote free trade and facilitate dispute resolution

Answer

Set global monetary policy

Answer

Provide development assistance

Answer

Regulate the international telecommunications sector

Question 8

In a floating exchange rate system:

Accepted Answer

Market forces determine the exchange rate.

Answer

The government sets the exchange rate.

Answer

The exchange rate is fixed to a specific currency.

Answer

The exchange rate is linked to a basket of currencies.

Question 9

A quota is a government-imposed measure that restricts the:

Accepted Answer

Quantity of goods that can be traded

Answer

Price of goods that can be traded

Answer

Type of goods that can be traded

Answer

Origin of goods that can be traded

Question 10

What is the main objective of fixed exchange rates?

Accepted Answer

Maintain a stable value of the currency

Answer

Allow for flexible currency adjustments

Answer

Promote capital mobility

Answer

Facilitate international trade

Question 11

Discuss the primary advantages and disadvantages of adopting a floating exchange rate system in international trade.

Accepted Answer

Advantages: Flexibility, Automatic adjustment
Disadvantages: Volatility, Speculation

Answer

Advantages: Stability, Predictability
Disadvantages: Loss of monetary autonomy, Misalignment

Answer

Advantages: Promotes exports, Discourages imports
Disadvantages: Potential for trade deficits

Question 12

When the US dollar depreciates, what happens to the quantity of US exports?

Accepted Answer

Increases

Answer

Decreases

Answer

Stays the same

Question 13

Which government policy is primarily used to shield domestic industries from international competition?

Accepted Answer

Tariffs

Accepted Answer

Quotas

Answer

Subsidies

Answer

Free Trade

Question 14

A country's balance of payments is a systematic record of:

Accepted Answer

Its economic transactions with other countries over a specific period, usually a year.

Answer

Its government's fiscal policies.

Answer

Its domestic economic performance.

Question 15

Which of the following is not a component of the current account of a country's balance of payments?

Accepted Answer

Foreign direct investment.

Answer

Imports of goods and services.

Answer

Net factor income.

Answer

Exports of goods and services.

Question 16

An appreciation of a country's exchange rate signifies that:

Accepted Answer

The value of its currency has increased relative to foreign currencies.

Answer

The value of its currency has decreased relative to foreign currencies.

Answer

The values of its currency and foreign currencies have remained unchanged.

Question 17

The Global Competitiveness Index primarily measures:

Accepted Answer

The overall competitiveness of a country's economy.

Answer

The cost of living in a country.

Answer

The size of a country's GDP.

Answer

The level of human development in a country.

Question 18

Which international organization plays a central role in promoting global monetary stability?

Accepted Answer

The International Monetary Fund (IMF).

Answer

The European Central Bank (ECB).

Answer

The United Nations (UN).

Answer

The World Bank.

Question 19

What is the term for the rate at which one currency can be exchanged for another?

Accepted Answer

Exchange rate

Answer

Unemployment rate

Answer

Interest rate

Answer

Inflation rate

Question 20

Which of the following is an **advantage** of international trade?

Accepted Answer

Increased economic growth

Answer

Lower living standards

Answer

Higher unemployment

Answer

Reduced competition

Question 21

What is the term for a situation where a country's exports exceed its imports?

Accepted Answer

Trade surplus

Answer

Current account deficit

Answer

Balance of trade

Answer

Trade deficit

Question 22

What is the main purpose of the International Monetary Fund (IMF)?

Accepted Answer

To provide financial assistance to countries in need and promote international monetary cooperation

Answer

To set interest rates

Answer

To promote international trade

Question 23

What is the term for a system where countries agree to reduce or eliminate tariffs and other trade barriers **among themselves**?

Accepted Answer

Free trade area

Answer

Economic union

Answer

Customs union

Answer

Common market

Question 24

Which of the following is a factor that can contribute to exchange rate **volatility**?

Accepted Answer

Speculation

Answer

Stable economic growth

Answer

Low inflation

Answer

Fixed exchange rates

Question 25

What is the main purpose of a currency peg?

Accepted Answer

To fix the exchange rate at a specific level against another currency

Answer

To prevent inflation

Answer

To allow the exchange rate to fluctuate freely

Answer

To promote economic growth