Chapter 2: International Flows of Funds

If a country's government imposes a tariff on imported goods, that country's current account balance will likely ____ (assuming no retaliation by other governments).

• decrease

• increase

• remain unaffected

An increase in the current account deficit will place ____ pressure on the home currency value, other things equal.

• upward

• downward

• no

• upward or downward (depending on the size of the deficit)

If the home currency begins to appreciate against other currencies, this should ____ the current account balance, other things equal (assume that substitutes are readily available in the countries, and that the prices charged by firms remain the same).

• increase

• have no impact on

• reduce

• all of the above are equally possible

The World Bank was established to:

• enhance development solely in Asia through grants.

• enhance economic development through non-subsidized loans (at market interest rates).

• enhance economic development through low-interest rate loans (below-market rates).

• enhance economic development of the private sector through investment in stock of corporations.

Which of the following would likely have the least direct influence on a country's current account?

• inflation

• national income.

• exchange rates.

• a tax on income earned from foreign stocks.

The "J curve" effect describes:

• the continuous long-term inverse relationship between a country's current account balance and the country's growth in gross national product.

• the short-run tendency for a country's balance of trade to deteriorate even while its currency is depreciating.

• the tendency for exporters to initially reduce the price of goods when their own currency appreciates.

• the reaction of a country's currency to initially depreciate after the country's inflation rate declines.

An increase in the use of quotas is expected to:

• reduce the country's current account balance, if other governments do not retaliate.

• increase the country's current account balance, if other governments do not retaliate.

• have no impact on the country's current account balance unless other governments retaliate.

• increase the volume of a country's trade with other countries.

The primary component of the current account is the:

• balance of trade.

• balance of money market flows.

• balance of capital market flows.

• unilateral transfers.

The demand for U.S. exports tends to increase when:

• economic growth in foreign countries decreases.

• the currencies of foreign countries strengthen against the dollar.

• U.S. inflation rises.

• none of the above.

"Dumping" is used in the text to represent the:

• exporting of goods that do not meet quality standards.

• sales of junk bonds to foreign countries.

• removal of foreign subsidiaries by the host government.

• exporting of goods at prices below cost.