Balance of Payments

Inflation can lead to high export costs, resulting in a ________.

• A) Trade surplus

• B) Current account deficit

• C) Balanced trade

• D) Economic boom

What is the phase of the business cycle called when the economy is at its highest point?

• Trough

• Peak

• Expansion

• Contraction

Fill in the blank: A relatively high inflation rate can lead to a higher deficit because it makes exports _______.

• Cheaper

• More expensive

• Unchanged

• More competitive

Which of the following is a cause of a deficit on the current account of the balance of payments?

• High trade deficit

• Financial inflows

• Debt repayments

• All of the above.

What is meant by 'financing' a deficit on the current account?

• Borrowing money to cover the deficit

• Reducing government spending

• Increasing exports

• Printing more money

Which of the following is a potential benefit of a current account deficit?

• Increased foreign investment

• Higher interest rates

• Lower inflation

• Stronger currency

Which of the following is a reason why a current account deficit might be considered not harmful?

• It is financed by foreign investment

• It leads to higher inflation

• It causes unemployment

• It reduces national debt.

What is a common consequence of a persistent current account deficit?

• Stronger currency

• Trade surplus

• Higher domestic savings

• Increased foreign debt

Which of the following can help reduce a current account deficit?

• Improving domestic production

• Raising interest rates

• Decreasing exports

• Increasing imports

How can a government finance a current account deficit?

• By printing more currency

• By increasing taxes

• By borrowing from foreign lenders

• By reducing exports