International economics

Table of Contents

1. Topic pack - International economics - introduction
2. Section 3.1 International trade (notes)
3. Section 3.1 International trade (questions)
4. Section 3.1 International trade - simulations and activities
5. Section 3.2 Exchange rates (notes)
6. Section 3.2 Exchange rates - questions
7. Section 3.2 Exchange rates - simulations and activities
8. Section 3.3 Balance of payments - notes
9. Section 3.3 Balance of payments - questions
   1. Current account - short answer
   2. The balance of payments - self-test questions
   3. Balance of payments - calculation (1)
   4. Balance of payments - calculation (2)
   5. Methods of correction - short answer
   6. Balance of payments - essay
   7. Can the beast be tamed? America's monster trade gap
10. Section 3.4 Economic integration - notes
11. Section 3.4 Economic integration - questions
12. Section 3.5 Terms of trade - notes
13. Section 3.5 Terms of trade - questions
14. Print View

The balance of payments - self-test questions

1

Balance of payments Which of the following is NOT part of the balance of payments? a) The current account b) The financial account c) The capital account d) The treasury account Yes, well done. That's correct. This is not an account of the balance of payments.The correct answer is D. All of the others form part of the balance of payments account.Your answer has been saved.

2

International trade Which of the following would NOT be a good reason for a firm expanding trade into foreign countries? a) Higher profits b) Diversification c) Market saturation d) Diseconomies of scale Yes, well done. That's correct. This is not a good reason for expanding internationally. The diseconomies of scale would mean that unit costs of production would be higher.The correct answer is D as this is not a good reason for expanding internationally. The diseconomies of scale would mean that unit costs of production would be higher.Your answer has been saved.

3

Inward investment Why might inward investment be an indicator of how competitive an economy is? a) Because it is part of the flows of money that circulate within the EU b) Because it would indicate that we are an attractive location for overseas firms c) The inflow of money would help our banking sector d) Because it would make certain regions more dependent on overseas investment Yes, well done. That's correct. This is a clear sign that foreign business sees the country as a good place in which to invest.The correct answer is B as it is a clear sign that foreign business sees the country as a good place in which to invest. A refers to intra EU trade and C could arise but it is not normally considered to be a sign of our international competitiveness. D could actually be a disadvantage as foreign business can leave, as well as arrive, so making some regions more vulnerable to changes in employment opportunities.Your answer has been saved.

4

Balance of payments deficit How might a government attempt to reduce a medium term balance of payments deficit? a) By reducing foreign exchange holdings b) By restructuring the macro economy c) By seeking a loan from the IMF d) By allowing overseas business to takeover certain sectors of the economy Yes, well done. That's correct. This is one of the options available to a government suffering medium term problems.The correct answer is C, as this is one of the options available to a government suffering medium term problems. A would normally be a way of addressing a short term problem. B is the normal option when considering long term problems. D might actually make the problem worse as profits would be returned to the home country of the business.Your answer has been saved.

5

Balance of payments policy Which of the following would be an appropriate policy to reduce a balance of payments deficit? a) An increase in government spending b) A cut in the level of indirect taxes c) An increase in interest rates d) A decrease in interest rates Yes, well done. That's correct. To reduce a balance of payments deficit requires a deflationary policy. This will reduce the level of aggregate demand and therefore the demand for imports. All the others are reflationary policies.The correct answer is C. To reduce a balance of payments deficit requires a deflationary policy. This will reduce the level of aggregate demand and therefore the demand for imports. All the others are reflationary policies.Your answer has been saved.

6

Fiscal policy How can fiscal policy be used to decrease the level of economic activity in an economy? a) It would allow the government to raise more money b) It would reduce consumer income so making consumption and the level of imports fall c) It would be a way of allowing the government to promote efficiency within business d) It would send the right signals to organisations such as the EU Yes, well done. That's correct. This is one of the options available to a government suffering medium term problems.The correct answer is B as an increase in taxes would reduce consumer disposable income and so cause a fall in consumption. A is certainly what arises if taxes are raised but it is not normally part of trade adjustment policies. C is incorrect as business would suffer as consumer spending fell and D might actually cause concern amongst our EU fellow members as our economy would be having the brakes applied.Your answer has been saved.