Open Economy Quiz

What is an open economy?

• An economy that only exports goods

• An economy that only imports goods

• An economy that interacts with other countries

• An economy that does not interact with other countries

Which of the following is NOT a way linkages are established in an open economy?

• Output Market

• Trade Market

• Financial Market

• Labour Market

What does the balance of payments (BoP) record?

• Transactions in goods, services, and assets

• Only imports of goods

• Only financial transactions

• Only exports of goods

What is the current account balance?

• The total income of a country

• The record of capital transactions

• The record of trade in goods and services

• The total expenditure of a country

What is the difference between exports and imports called?

• Trade Balance

• Current Account

• Capital Account

• Net Exports

What is the nominal exchange rate?

• The price of one currency in terms of another

• The real value of goods in different currencies

• The rate at which goods are traded internationally

• The interest rate on foreign investments

What happens when a country has a current account deficit?

• It has a surplus in the capital account

• It must finance the deficit by selling assets

• It is a lender to other countries

• It has a balanced budget

What is depreciation in terms of currency?

• A fixed exchange rate set by the government

• An increase in the value of domestic currency

• A decrease in the price of domestic currency in terms of foreign currency

• An increase in the price of foreign currency

What is the marginal propensity to import?

• The fraction of income spent on domestic goods

• The fraction of income spent on imports

• The total amount of exports in a year

• The total amount of imports in a year

What is the primary function of money in an economy?

• All of the above

• Store of value

• Unit of account

• Medium of exchange