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Flashcards in SS 6: Economics in a Global Context Deck (34)
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1
Q

A common market structure incorporates all aspects of the customs union and extends it by:

A

allowing free movement of factors of production among members.

2
Q

Autarky is best described as a state in which a country::

A

Does not trade with other countries

3
Q

In an effort to influence the economy, a central bank conducted open market activities by selling
government bonds. This action implies that the central bank is most likely attempting to:

A

contract the economy by reducing bank reserves.

4
Q

The Ricardian trade model supports the idea that comparative advantage and the pattern of trade are determined by:

A

Differences in technology between countries

5
Q

Assuming its trading partner does not retaliate, which condition must hold in order for a large country to increase its national welfare by imposing a tariff?

A

The deadweight loss must be smaller than the benefit of its improving terms of trade.

6
Q

Quota rents are best described as:

A

The extra profits foreign producers can earn when a quota is imposed

7
Q

Forward/Spot formula:

A

Discount/Premium = (forward/spot) - 1

8
Q

A form of trading bloc which imposes trade restrictions on non-member countries is usually referred to as a:

A

Customs union

9
Q

The fiscal multiplier is:

A

1
/
1 - c(1 - T)

where:
c = marginal propensity to consume = consumption / disposable income

T = the tax rate

10
Q

Which international organization has an objective of creating the basic economic infrastructure essential for creation and maintenance of domestic financial markets and a well functioning financial industry in developing countries?

A

World Bank

11
Q

The country with the higher interest rate will always trade at a _______ in the forward market

A

Discount

12
Q

A crawling peg currency regime which is regularly adjusted to keep pace with inflation is best known as a:

A

Passive crawling peg

13
Q

The ______ account measures the flow of goods and services in to and out of the country.

A

Current

14
Q

Foreign direct aid would most likely be captured in which of the following balance of payment components?

A

Current Account

15
Q

Forward points =

A

(Forward rate - Spot rate) x 10,000

16
Q

The ______ account measures the transfer of capital.

A

Capital

17
Q

Name the 4 sub-accounts of the Current Account:

A

I: Merchandise trade e.g. commodities bought and sold or given away

II: Services e.g. tourism

III: Income receipts e.g. income on foreign investment

IV: Unilateral transfers e.g. one-way transfers of assets such as foreign direct aid

18
Q

Central banks have three primary tools available to them:

A

open market operations

setting the official policy rate

reserve requirements

19
Q

As a country opens up to trade, the benefit accrues to the:

A

Abundant factor

20
Q

The _______ account measures the flow of financial assets abroad and foreign owned financial assets within the reporting country.

A

Financial

21
Q

In the context of the balance of payments (BOP) accounts, tourism, transportation and business services are likely to be captured in which component of the BOP?

A

Current Account

22
Q

Which organization attempts to limit global systemic risk by preventing contagion in scenarios such as the 2010/11 Greek sovereign debt crisis?

A

International Monetary Fund (IMF)

23
Q

A direct exchange rate quote is where the _______ currency is the price (variable) currency, and the ______ currency is the base currency.

A

Domestic, Foreign

24
Q

In the classification of currency regimes, a currency board system (CBS) most likely differs from a fixed-rate parity system in that:

A

the monetary authority within a CBS does not act as a traditional lender of last resort.

In a CBS, the monetary authority has an obligation to maintain 100% foreign currency reserves against the monetary base. It therefore cannot lend to troubled financial institutions. As long as the country under a fixed parity regime maintains its exchange peg, the central bank can serve as a lender of last resort.

25
Q

In the context of the balance of payments (BOP) accounts, the sale of mineral rights is likely to be captured in which of the following components of the BOP?

A

Capital Account

(The capital account records the transfers of capital and the sale and purchase of non-produced, non-financial assets such as intangible assets and mineral rights)

26
Q

The Heckscher-Ohlin trade model suggests that:

A

Both capital and labor are variable factors of production

27
Q

‘A country uses the currency of another nation as it medium of exchange and unit of account’ describes:

A

Dollarization

28
Q

Government issued bonds that are owned by foreign countries would most likely be captured in which of the following balance of payment components?

A

Financial Account

29
Q

If a government places a limit on investments made by its citizens in foreign stocks, it is called:

A

Capital Restriction

30
Q

Trade restrictions involve:

A

The selling and buying of products from other countries

31
Q

How can a country reduce its trade deficits?

A

Increase private savings

Reduce investments

Increase budget surpluses

(X-M) = (S-I) + (T-G)

32
Q

‘The depreciation of a currency is more likely to narrow the country’s trade deficit if national savings increase relative to domestic investment in physical capital’ is a tenet of:

A

The absorption approach

33
Q

Which model suggests that the source of comparative advantage is labor productivity?

A

Ricardian model

34
Q

Real exchange rate =

A

Nominal spot exchange rate * CPI of foreign country / CPI of domestic country