Questions:
1. Which of the following is a precondition for economic growth?
a high level of technology
a high K/L ratio
the rule of law
free trade
2. The possession of primary products in a developing country could:
provide a convenient source of revenue for the government.
reduce the amount of foreign exchange available.
make the development of infrastructure more difficult.
retard industrial development.
3. The following countries has a large amount of economic freedom?
Hong Kong
Libya
Zimbabwe
Laos
4. The production function:
is linear.
is undefined for low-income countries.
slopes downward and to the right.
slopes upward to the right.
5. The rule of law is important to economic growth as it is necessary for the
enforcement of _____ .
free trade
emigration
contracts
industrial policy
6. Which of the following statements is false?
High levels of consumption tend to be associated with current account deficits.
High levels of savings tend to be associated with current account surpluses.
Low levels of savings tend to be associated with current account deficits.
Low levels of savings tend to be associated with capital account deficits.
7. A record of all economic transactions between residents of one country with the
rest of the world is called:
the trade balance.
the balance of payments.
the current account balance.
the foreign exchange market.
8. Which of the following is not one of the components of GDP?
Gross private domestic investment
Consumption by the public
Government spending on goods and services
Foreign direct investment by U.S. corporations
9. The value of final output measured in current prices is:
nominal GDP.
market value GDP.
real GDP.
real nominal GDP.
10. When GDP is larger than the sum of C, I, and G, then:
a country prefers current consumption to future consumption.
a country prefers future consumption to current consumption.
a country will have a trade deficit.
a country will borrow to increase spending.
11. The foreign exchange market is composed of:
the retail market.
the inter-bank market.
the futures and options markets.
all of the above
12. One of the most important interest rates in the world economy is:
the Lombard rate
the prime rate.
RR rate.
LIBOR.
13. A _____ is when two parties agree to exchange different currencies over a
specified period of time.
futures contract
option
currency swap
XR contract
14. If an importer wants to protect a transaction against exchange rate fluctuations
he/she can use the:
spot rate.
forward rate.
strike price.
future spot rate.
15. The principle of _____ states that if the returns on various assets do not move
together identically, then holding a portfolio of assets will be less risky than holding a
single asset.
risk diversification
asset allocation
stock/bond split
time horizon symmetry
16. An example of depreciation of the dollar would be if the number of Mexican pesos a dollar would purchase went from _____ to _____.
100, 125
125, 150
150, 180
200, 180
17. As the Mexican peso appreciates, exports from Mexico become_____ and imports
into Poland become _____.
cheaper, cheaper
cheaper, more expensive
more expensive, more expensive
more expensive, cheaper
18. As the dollar depreciates:
the quantity supplied of foreign exchange increases.
the quantity supplied of foreign exchange decreases.
the supply of foreign exchange decreases.
the supply of foreign exchange increases.
19. If the initial exchange rate is 120 yen per dollar and then falls to 110 yen per
dollar, we would say that the yen has:
appreciated against the dollar.
depreciated against the dollar.
appreciated against the yen.
depreciated against the yen.
20. Import competing industries in the U.S. are likely to resist:
an appreciation of the dollar because U.S. imports would become more expensive.
a depreciation of the dollar because U.S. imports would become more expensive.
an appreciation of the dollar because U.S. imports would become less expensive.
a depreciation of the dollar because U.S. imports would become less expensive