International Economics MCQs and Notes

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📊 International Economics
Q. The international Fisher effect (IFE) suggests that:
  • (A) a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate.
  • (B) a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate.
  • (C) a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate.
  • (D) a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
💬 Discuss
✅ Correct Answer: (A) a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate.
📊 International Economics
Q. Assume a two-country world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP) as related to these two countries?
  • (A) If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken.
  • (B) If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will weaken.
  • (C) If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will strengthen.
  • (D) If Country B's inflation rate exceeds Country A's inflation rate, Country A's currency will weaken.
💬 Discuss
✅ Correct Answer: (A) If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken.
📊 International Economics
Q. Balance of payments means:
  • (A) The balance of receipts and payments of all banks
  • (B) The balance of receipts and payments of State Bank
  • (C) The balance of receipts and payments of foreign exchange by a country
  • (D) The balance of govt. receipts and payments
💬 Discuss
✅ Correct Answer: (C) The balance of receipts and payments of foreign exchange by a country
📊 International Economics
Q. Rich countries have deficit in their balance of payments:
  • (A) Sometimes
  • (B) Never
  • (C) Alternate years
  • (D) Always
💬 Discuss
✅ Correct Answer: (A) Sometimes
📊 International Economics
Q. If a country decreases the external value of its currency, it will affect:
  • (A) Volume of exports
  • (B) Volume of imports
  • (C) General price level
  • (D) All of the above
💬 Discuss
✅ Correct Answer: (D) All of the above
📊 International Economics
Q. Gold standard means:
  • (A) Currency of the country is made of gold
  • (B) Paper currency is not used
  • (C) Currency of the country is freely convertible into gold
  • (D) (a) & (c) of above
💬 Discuss
✅ Correct Answer: (D) (a) & (c) of above
📊 International Economics
Q. If Canada runs a current account surplus and exchange rates are floating:
  • (A) The value of other currencies will rise relative to the dollar
  • (B) The dollar will depreciate relative to other currencies
  • (C) The price of foreign goods will become cheaper for Canadians
  • (D) The price of foreign goods will rise for Canadians
💬 Discuss
✅ Correct Answer: (C) The price of foreign goods will become cheaper for Canadians
📊 International Economics
Q. Suppose Mexico and the United States were the only two countries in the world. There exists anexcess supply of pesos on the foreign exchange market. This suggests that:
  • (A) Mexico’s current account is in surplus
  • (B) Mexico’s current account is in deficit
  • (C) The U.S. current account is in deficit
  • (D) The U.S. current account is in equilibrium
💬 Discuss
✅ Correct Answer: (B) Mexico’s current account is in deficit
📊 International Economics
Q. Assume that the United States faces an 8 percent inflation rate while no (zero) inflation existsin Japan. According to the purchasing-power-parity theory, the dollar would be expected to:
  • (A) Appreciate by 8 percent against the yen
  • (B) Depreciate by 8 percent against the yen
  • (C) Remain at its existing exchange rate
  • (D) None of the above
💬 Discuss
✅ Correct Answer: (B) Depreciate by 8 percent against the yen
📊 International Economics
Q. Low real interest rates in the United States tend to:
  • (A) Decrease the demand for dollars, causing the dollar to depreciate
  • (B) Decrease the demand for dollars, causing the dollar to appreciate
  • (C) Increase the demand for dollars, causing the dollar to depreciate
  • (D) Increase the demand for dollars, causing the dollar to appreciate
💬 Discuss
✅ Correct Answer: (A) Decrease the demand for dollars, causing the dollar to depreciate

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