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WorksheetsEcons 1.4 2504
Total questions: 40
Worksheet time: 2hrs 35mins
Name
Class
Date
1.
Which of the following best describes a function of the International Bank for Reconstruction and Development?
a)
A. Lending foreign currencies on a temporary basis to address balance of payment issues
b)
B. Regulating cross-border trade relationships on a global scale
c)
C. Providing low interest rate loans to developing countries
2.
a)
A. NZD7,248.
b)
B. NZD4,565.
c)
C. NZD7,761.
3.
A country with a trade deficit will most likely:
a)
A. have an offsetting capital account surplus.
b)
B. save enough to fund its investment spending.
c)
C. buy assets from foreigners to fund the imbalance.
4.
The transmission of a central bank’s policy rate action through the economy ultimately affects:
a)
A. total demand.
b)
B. inflation.
c)
C. long-term interest rates.
5.
Which of the following is not a condition of an ideal currency regime?
a)
A. Fully convertible currencies.
b)
B. Fully independent monetary policy.
c)
C. Independently floating exchange rates.
6.
Germany has much more capital per worker than Portugal. In autarky each country produces and consumes both machine tools and wine. Production of machine tools is relatively capital intensive whereas winemaking is labor intensive. According to the Heckscher–Ohlin model, when trade opens:
a)
A. Germany should export machine tools and Portugal should export wine.
b)
B. Germany should export wine and Portugal should export machine tools.
c)
C. Germany should produce only machine tools and Portugal should produce only wine.
7.
In an effort to influence the economy, a central bank conducted open market activities by selling government bonds. This action implies that the central bank is most likely attempting to:
a)
A. contract the economy by reducing bank reserves.
b)
B. expand the economy through a lower policy interest rate.
c)
C. contract the economy through a lower policy interest rate.
8.
Which of the following statements regarding the money creation process in fractional reserve banking is correct?
a)
A. The reserve requirement is negatively related to the quantity of money created.
b)
B. The reserve requirement is positively related to the availability of credit.
c)
C. The money multiplier is unaffected by the reserve requirement.
9.
A fixed exchange rate regime in which the monetary authority is legally required to hold foreign exchange reserves backing 100% of its domestic currency issuance is best described as:
a)
A. dollarization.
b)
B. a currency board.
c)
C. a monetary union.
10.
As the reserve requirement increases, the money multiplier:
a)
A. increases.
b)
B. decreases.
c)
C. remains the same.
11.
Which of the following counterparties is most likely to be considered a sell-side foreign-exchange market participant?
a)
A. A large corporation that borrows in foreign currencies.
b)
B. A sovereign wealth fund that influences cross-border capital flows.
c)
C. A multinational bank that trades foreign exchange with its diverse client base.
12.
a)
A. −4,087.
b)
B. −4,216.
c)
C. −4,345.
13.
According to the Heckscher–Ohlin model, when trade opens:
a)
A. the scarce factor gains relative to the abundant factor in each country.
b)
B. the abundant factor gains relative to the scarce factor in each country.
c)
C. income is redistributed between countries but not within each country.
14.
The sale of mineral rights would be captured in which of the following balance of payments components?
a)
A. Capital account.
b)
B. Current account.
c)
C. Financial account.
15.
Which of the following statements regarding the characteristics of money is correct?
a)
A. Compared to a barter economy, an economy in which money is the medium of exchange has more prices.
b)
B. Money as a medium of exchange depends on shared beliefs about its value.
c)
C. Money’s low value relative to its weight enhances wealth portability.
16.
Which of the following organizations helps to keep global systemic risk under control by preventing contagion in scenarios such as the 2010 Greek sovereign debt crisis?
a)
A. World Bank Group (World Bank).
b)
B. World Trade Organization (WTO).
c)
C. International Monetary Fund (IMF).
17.
a)
A. AUD19,225.
b)
B. AUD39,891.
c)
C. AUD20,667.
18.
Which of the following is least likely to be a valid function/characteristic of money? Money:
a)
A. provides a store of wealth.
b)
B. requires a double coincidence of wants.
c)
C. acts as a unit of account.
19.
Which is the most accurate statement regarding central banks and monetary policy?
a)
A. Central bank activities are typically intended to maintain price stability.
b)
B. Monetary policies work through the economy via four independent channels.
c)
C. Commercial and interbank interest rates move inversely to official interest rates.
20.
The least likely limitation to the effectiveness of monetary policy is that central banks cannot:
a)
A. accurately determine the neutral rate of interest.
b)
B. regulate the willingness of financial institutions to lend.
c)
C. control amounts that economic agents deposit into banks.
21.
In a hypothetical economy, consumption is 70% of pre-tax income, and the average tax rate is 25% of total income. If planned government expenditures are expected to increase by $1.25 billion, the increase in total income and spending, in billions, is closest to:
a)
A. $2.6.
b)
B. $4.2.
c)
C. $1.3.
22.
A country with a persistent trade surplus is being pressured to let its currency appreciate. Which of the following best describes the adjustment that must occur if currency appreciation is to be effective in reducing the trade surplus?
a)
A. Domestic investment must decline relative to saving.
b)
B. Foreigners must increase investment relative to saving.
c)
C. Global capital flows must shift toward the domestic market.
23.
A large industrialized country has recently devalued its currency in an attempt to correct a persistent trade deficit. Which of the following domestic industries is most likely to benefit from the devaluation?
a)
A. Luxury cars.
b)
B. Branded prescription drugs.
c)
C. Restaurants and live entertainment venues.
24.
Which of the following best represents a contractionary fiscal policy?
a)
A. Public spending on a high-speed railway.
b)
B. A temporary suspension of payroll taxes.
c)
C. A freeze in discretionary government spending.
25.
Which role is a central bank least likely to assume?
a)
A. Lender of last resort.
b)
B. Sole supervisor of banks.
c)
C. Supplier of the currency.
26.
a)
A. 0.9205.
b)
B.1.0864.
c)
C. 1.2978.
27.
Which action is a central bank least likely to take if it wants to encourage businesses and households to borrow for investment and consumption purposes?
a)
A. Sell long-dated government securities.
b)
B. Purchase long-dated government treasuries.
c)
C. Purchase mortgage bonds or other securities.
28.
If the base currency in a forward exchange rate quote is trading at a forward discount, which of the following statements is most accurate?
a)
A. The forward points will be positive.
b)
B. The forward percentage will be negative.
c)
C. The base currency is expected to appreciate versus the price currency.
29.
a)
A. Brazil: 2 vegetables per flashlight.
b)
B. Mexico: 1.5 vegetables per flashlight.
c)
C. Mexico: ⅓ flashlight per vegetable.
30.
A “pay-as-you-go” rule, which requires that any tax cut or increase in entitlement spending be offset by an increase in other taxes or reduction in other entitlement spending, is an example of which fiscal policy stance?
a)
A. Neutral.
b)
B. Expansionary.
c)
C. Contractionary.
31.
a)
A. The loan.
b)
B. The shipping.
c)
C. The dividend.
32.
Which of the following actions on the part of a central bank is most consistent with increasing the quantity of money?
a)
A. Purchasing securities on the open market
b)
B. Increasing the central bank policy rate
c)
C. Increasing reserve requirements
33.
a)
A. −3.00.
b)
B. 3.09.
c)
C. 0.70.
34.
A developing country that maintains a fixed value for its currency relative to the US dollar is experiencing a decline in its economic activity, and its inflation rate falls below the level of inflation in the United States. The most likely result of the developing country’s actions to maintain the fixed exchange rate target is that its:
a)
A. foreign exchange reserves will decrease.
b)
B. short-term interest rates will fall.
c)
C. money supply will contract.
35.
Which of the following statements best describes the costs of international trade?
a)
A. Countries without an absolute advantage in producing a good cannot benefit significantly from international trade.
b)
B. Resources may need to be allocated into or out of an industry and less-efficient companies may be forced to exit an industry, which in turn may lead to higher unemployment.
c)
C. Loss of manufacturing jobs in developed countries as a result of import competition means that developed countries benefit far less than developing countries from trade.
36.
The most likely argument against high national debt levels is that:
a)
A. the debt is owed internally to fellow citizens.
b)
B. they create disincentives for economic activity.
c)
C. they may finance investment in physical and human capital.
37.
In order to minimize the foreign exchange exposure on a euro-denominated receivable due from a German company in 100 days, a British company would most likely initiate a:
a)
A. spot transaction.
b)
B. forward contract.
c)
C. real exchange rate contract.
38.
a)
A. Canada.
b)
B. Brazil.
c)
C. Mexico.
39.
Which of the following international trade organizations regulates cross-border exchange among nations on a global scale?
a)
A. World Bank Group (World Bank).
b)
B. World Trade Organization (WTO).
c)
C. International Monetary Fund (IMF).
40.
According to the Fisher effect, an increase in expected inflation will most likely increase:
a)
A. the real interest rate.
b)
B. both nominal and real interest rates.
c)
C. the nominal interest rate.
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