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The balance of payments - self-test questions

question

1

Balance of payments

Which of the following is NOT part of the balance of payments?

a)
b)
c)
d)
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.
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2

International trade

Which of the following would NOT be a good reason for a firm expanding trade into foreign countries?

a)
b)
c)
d)
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.
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3

Inward investment

Why might inward investment be an indicator of how competitive an economy is?

a)
b)
c)
d)
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.
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4

Balance of payments deficit

How might a government attempt to reduce a medium term balance of payments deficit?

a)
b)
c)
d)
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.
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5

Balance of payments policy

Which of the following would be an appropriate policy to reduce a balance of payments deficit?

a)
b)
c)
d)
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.
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6

Fiscal policy

How can fiscal policy be used to decrease the level of economic activity in an economy?

a)
b)
c)
d)
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.
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