International Finance – Chapter 2

A high home inflation rate relative to other countries would ____ the home country’s current account balance, other things equal. A high growth in the home income level relative to other countries would ____ the home country’s current account balance, other things equal.a. increase; increaseb. increase; decreasec. decrease; decreased. decrease; increase C
2. If a country’s government imposes a tariff on imported goods, that country’s current account balance will likely ____ (assuming no retaliation by other governments).a. decreaseb. increasec. remain unaffectedd. either A or C are possible B
3. If the home currency begins to appreciate against other currencies, this should ____ the current account balance, other things equal (assume that substitutes are readily available in the countries, and that the prices charged by firms remain the same).a. increaseb. have no impact onc. reduced. all of the above are equally possible C
4. The World Bank was established to:a. enhance development solely in Asia through grants.b. enhance economic development through non-subsidized loans (at market interest rates).c. enhance economic development through low-interest rate loans (below-market rates).d. enhance economic development of the private sector through investment in stock of corporations. B
5. Which of the following would likely have the least direct influence on a country’s current account?a. inflation.b. national income.c. exchange rates.d. tariffs.e. a tax on income earned from foreign stocks. E

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