Capital Flight and Indebtedness Quiz

What is capital flight?

• An inflow of funds into a country

• An outflow of funds from a country

• An increase in domestic savings

• A decrease in foreign borrowing

What are the main reasons for individuals, firms, and governments to borrow money?

• To service outstanding debt

• To finance current expenditures

• To finance long-term infrastructure projects

• All of the above

What is the difference between capital flight and normal capital outflows?

• Capital flight is a sudden and large-scale outflow of funds

• Normal capital outflows are more common than capital flight

• Capital flight is caused by economic, political, or social changes

• Normal capital outflows have no impact on the economy

Why do countries often enact high interest rates during capital flight?

• To encourage money to stay in the country

• To attract foreign investors

• To increase domestic investment

• To reduce government spending

What is the impact of capital flight on a country's tax base?

• It increases the tax base

• It has no impact on the tax base

• It decreases the tax base

• It stabilizes the tax base

What is indebtedness?

• An outflow of funds from a country

• A situation where an individual, firm, or government owes money

• An increase in domestic savings

• A decrease in foreign borrowing

What are the inappropriate uses of new debt?

• To service outstanding debt

• To finance current expenditures

• To finance long-term infrastructure projects

• None of the above

What is debt default?

• When debts become too high

• When a country borrows money from another country

• When a country imposes capital controls

• When a country cannot make debt payments

What is debt restructuring?

• Extending debt payments

• Changing interest rates

• Reducing the amount of a loan

• All of the above

Why are debt to GNI and debt service to exports ratios important when evaluating levels of debt?

• They determine the interest rates on loans

• They indicate the ability to make debt payments

• They determine the amount of debt relief provided

• They indicate the level of foreign borrowing