Q. The relationship between the exchange rate and the prices of tradable goods is known as the:
✅ Correct Answer: (A)
Purchasing-power-parity theory
International Economics MCQs and Notes
Q. A major difference between the spot market and the forward market is that the spot market deals with:
✅ Correct Answer: (A)
The immediate delivery of currencies
Q. The burden of a current account deficit would be the least if a nation uses what it borrows to finance:
✅ Correct Answer: (D)
Investment on plant and equipment
Q. Concerning a country’s business cycle, rapid growth of production and employment is commonly associated with:
✅ Correct Answer: (A)
Large or growing trade deficits and current account deficits
Q. Reducing a current account surplus requires a country to:
✅ Correct Answer: (A)
Increase the government’s deficit and increase private investment relative to saving
Q. Reducing a current account deficit requires a country to:
✅ Correct Answer: (D)
Decrease the government’s deficit and decrease private investment relative to saving
Q. What is the effect of a currency devaluation under fixed exchange rates in the short run?
✅ Correct Answer: (C)
An increase in exports.
Q. What is the effect of an increase in taxes under fixed exchange rates and perfect asset substitutability in the short run?
✅ Correct Answer: (C)
An increase in output and no change in interest rates.
Q. If there is a decline in output, to keep the exchange rate fixed, the central bank has to:
✅ Correct Answer: (C)
Sell foreign assets.
Q. If the central bank purchases assets, it will result in:
✅ Correct Answer: (C)
An increase in the money supply.