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

a tax on income earned from foreign stocks.

The "J curve" effect describes:

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

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

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:

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

reduce 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 North American Free Trade Agreement (NAFTA) increased restrictions on:

trade between Canada and Mexico.

trade between Canada and the U.S.

direct foreign investment in Mexico by U.S. firms.

According to the text, international trade (exports plus imports combined) as a percentage of GDP is:

lower in the U.S. than in European countries.

higher in the U.S. than in European countries.

higher in the U.S. than in about half the European countries, and lower in the U.S. than the others.

about the same in the U.S. as in European countries.

The primary component of the current account is the:

balance of capital market flows.

As a result of the European Union, restrictions on exports between ____ were reduced or eliminated.

member countries and European non-members

Over the last several years, international trade has generally:

increased for most major countries.

decreased for most major countries.

stayed about constant for most major countries.

increased for about half the major countries and decreased for the others.

Which is not a concern about the North American Free Trade Agreement (NAFTA)?

its impact on U.S. unemployment.

lower environmental standards in Mexico.

different health laws for workers in Mexico.

A General Agreement on Tariffs and Trade (GATT) accord in 1993 called for:

lower trade restrictions around the world.

increased trade restrictions outside of North America.

uniform environmental standards around the world.

Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance of trade position (increase its exports or reduce its imports).

It could attempt to reduce its home currency's value.

The government could require firms to engage in outsourcing.

The government could require that its local firms pursue outsourcing.

All of the above are mentioned.

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

the currencies of foreign countries strengthen against the dollar.

economic growth in foreign countries decreases.

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

exporting of goods at prices below cost.

exporting of goods that do not meet quality standards.

sales of junk bonds to foreign countries.

removal of foreign subsidiaries by the host government.

A weak home currency may not be a perfect solution to correct a balance of trade deficit because:

foreign companies may reduce the prices of their products to stay competitive.

it reduces the prices of imports paid by local companies.

it increases the prices of exports by local companies.

it prevents international trade transactions from being prearranged.

Like the International Monetary Fund (IMF), the ____ is composed of a collection of nations as members. However, unlike the IMF, it uses the private rather than the government sector to achieve its objectives.

International Financial Corporation (IFC)

International Development Association (IDA)

Bank for International Settlements (BIS)

The World Bank's Multilateral Investment Guarantee Agency (MIGA):

offers various forms of political risk insurance.

offers various forms of export insurance.

offers various forms of import insurance.

offers various forms of exchange rate risk insurance.

provides loans to developing countries.

Also known as the "central banks' central bank," the ____ attempts to facilitate cooperation among countries with regard to international transactions and provides assistance to countries experiencing a financial crisis.

Bank for International Settlements (BIS)

International Financial Corporation (IFC)

International Development Association (IDA)

Which of the following will probably not result in an increase in a country's current account balance (assuming everything else constant)?

An appreciation of the country's currency

A decrease in the country's rate of inflation

A decrease in the country's national income level

An increase in government restrictions in the form of tariffs or quotas

All of the above will result in an increased current account balance.

Which of the following factors probably does not directly affect a country's capital account and its components?

Withholding taxes on foreign income

All of the above will directly affect a country's capital account.

The ____, an accord among 117 nations, called for lower tariffs around the world.

General Agreement on Tariffs and Trade (GATT)

North American Free Trade Agreement (NAFTA)

Which of the following is not likely to represent a strategy by the government of Country X to reduce its balance of trade deficit with Country Y?

The government of Country X removes a tariff on goods imported from Country Y.

The government of Country X eliminates environmental restrictions.

The government of Country X subsidizes firms in its country to facilitate dumping.

The government of Country X provides tax breaks to firms in specific industries.

Which of the following statements is not true?

Exporters commonly complain that they are being mistreated because the currency of their country is too weak.

Outsourcing affects the balance of trade because it means that a service is purchased in another country.

Sometimes, trade policies are used to punish countries for various actions.

Tariffs imposed by the EU have caused some friction between EU countries that commonly import products and other EU countries.

Which of the following would increase the current account of Country X? Country Y is Country X's sole trading partner.

The central banks of Country X and Country Y reduce the money supply to increase interest rates.

Inflation increases in countries X and Y by comparable amounts.

Country X's and Country Y's currencies depreciate by the same amount.

Country X imposes tariffs on imports from Country Y, and Country Y retaliates by imposing an identical tax on X's exports.

Country X imposes a quota on imports, and Country Y retaliates by imposing an identical quota on X's exports.

Which of the following is not a goal of the International Monetary Fund (IMF)?

To enhance a country's long-term economic growth via the extension of structural adjustment loans

To promote cooperation among countries on international monetary issues

To promote stability in exchange rates

To promote free mobility of capital funds across countries

Chapter 2

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47 questions

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Recently, the U.S. experienced an annual balance of trade representing a ____.

large surplus (exceeding $100 billion)

small surplus

level of zero

deficit

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A high home inflation rate relative to other countries would the home country's current account balance, other things equal. A high growth in the home income level relative to other countries would the home country's current account balance, other things equal.

increase; increase

increase; decrease

decrease; decrease

decrease; increase

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

either A or C are possible

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

____ purchases more U.S. exports than the other countries listed here.

Italy

Spain

Mexico

Canada

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

upward

downward

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

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The International Financial Corporation 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.

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Chapter 2

Recently, the U.S. experienced an annual balance of trade representing a ____.

A high home inflation rate relative to other countries would the home country's current account balance, other things equal. A high growth in the home income level relative to other countries would the home country's current account balance, other things equal.

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).

____ purchases more U.S. exports than the other countries listed here.

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

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).

The International Financial Corporation was established to:

The World Bank was established to:

The International Development Association was established to:

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

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Chapter 2

Recently, the U.S. experienced an annual balance of trade representing a ____.

A high home inflation rate relative to other countries would ____ the home country's current account balance, other things equal. A high growth in the home income level relative to other countries would ____ the home country's current account balance, other things equal.

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).

____ purchases more U.S. exports than the other countries listed here.

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

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).

The International Financial Corporation was established to:

The World Bank was established to:

The International Development Association was established to:

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

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A high home inflation rate relative to other countries would the home country's current account balance, other things equal. A high growth in the home income level relative to other countries would the home country's current account balance, other things equal.