Open Economy Macroeconomics Test 2

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Open Economy Macroeconomics Test 2

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Weekly Quiz Competition

Question 1
1 / -0

Identify the one, from the following, which is not a type of disequilibrium in the balance of payments of a country.

A
Cyclical disequilibrium

B
Secular disequilibrium

C
Structural disequilibrium

D
Sectoral disequilibrium

Solution

Structural disequilibrium occurs due to change that takes place due to the effect of import and export of the country.
Cyclical disequilibrium is caused due to trade cycle. It can be corrected throughout import and export adjustment.
Secular disequilibrium is when an economy undergoes intensive changes. It has long-term disequilibrium effect on Balance of payment.
Hence, option D is correct.

Question 2

1 / -0

Match the items of List-I items in List-II and select a correct code:

List-I	List-II
(a) Current Account	(i) Official Capital
(b) Capital Account	(ii) Reserves from foreign countries
(c) Unilateral Payments	(iii) Reparations
(d) Official Statement Account	(iv) Visible and invisible exports and imports

$$(a) - (i), (b) - (iii), (c) - (ii), (d) - (iv)$$

$$(a) - (iv), (b) - (i), (c) - (ii), (d) - (iii)$$

$$(a) - (iv), (b) - (i), (c) - (iii), (d) - (ii)$$

$$(a) - (iii), (b) - (ii), (c) - (i), (d) - (iv)$$

Solution

A-4 The balance of the current account = Balance of trade + Balance of invisible + balance of transfers

B-1

The balance of the capital account refers to the balance of capital transfers - borrowing and lending from abroad and sales and purchase of assets, such as gold and foreign exchange from other countries.

C-3

repatriation is a unilateral payment as there is only one party actively involved in the transaction.

D-2

The official statement account contains the foreign reserves held by the central bank of the country. This is extremely important if the country wishes to maintain a fixed or managed float currency.

Question 3
1 / -0

Balance of trade of a country is equivalent to __________________.

A
difference between the inward and outward remittances made in foreign exchange

B
surplus generated shown in a trading account

C
difference between exports and imports

D
none of the above

Solution

Balance of trade refers to that balance of a country which remains after the trade in both goods and services, thus, basically showing the difference between exports and imports of a country. The balance of trade of a country is also termed as net exports of a country.
Question 4
1 / -0

By "deemed exports" it means ______________.

A
supplies of goods and services to units within the country which can earn foreign currency to the country

B
exports made by units situated in EPZ areas to out of country

C
exports made by EOU out of the country

D
anticipated value of exports

Solution

According to the ministry of commerce, "Deemed Exports" refers to those transactions in which the goods supplied do not leave the country and the payment for such supplies is received either in Indian rupees or in free foreign exchange"
Question 5
1 / -0

By devaluation we mean ___________________.

A
a fall in the external value of a currency caused by central bank action

B
a fall in the external value of a currency caused by the market forces

C
a fall in the external value of a currency caused by Government action

D
none of the above

Solution

When the country follows a fixed exchange rate regime the government constantly has to revalue and devalue the currency in order to maintain the pegged exchange rate. When there is upwards market pressure on the currency to appreciate, the central bank will artificially devalue the currency by buying up foreign reserves.
Question 6
1 / -0

Which of the following economic concepts is categorised on the basis of current account or capital account or both?

A
Balance of payments

B
Value of the foodgrain stock of a country

C
Gross National Product (GNP)

D
Gross National Income (GNI)

Solution

Balance of Payment (BoP): BoP of a country is a systematic record of all economic transactions completed between its residents and the residents of remaining world during a year. Balance of payment is a comprehensive term which includes both visible and invisible items.
Balance of Payments accounts in India consists of two accounts --- Current Account and Capital Account.
Current Account includes all the debit and credit entries of invisible items side-by-side with trade items, while Capital Account is related with the entries of capital transactions in the country. The Current Account is the important one because it indicates the health of the economy.
Question 7
1 / -0

Which one of the following is true statement?

A
Balance of trade deals with export and import of invisible items only.

B
Balance of payment deals with both visible and invisible items.

C
The current account is not a component of balance of payment.

D
All of the above.

Solution

The balance of payments account comprises of the current account and the capital account. The current account consists of the visible and invisible imports and exports of the country as well as unilateral transfers and income receipts and payments. The capital account includes the capital receipts and capital payments such as portfolio investments.
Question 8
1 / -0

What is bilateral aid?

A
It is technical aid given by IMF to various countries.

B
It is given directly by one country to another.

C
It is aid with the condition that the repayment will be in inconvertible currency.

D
It is a commercial loan made available by various institutions jointly.

Solution

'Bilateral' means "two sides". Thus, bilteral aid is an aid from a single donor country to a single recipient country, in contrast to multilateral aid, which has the involvement of multiple countries together.
Question 9
1 / -0

Which of the following is/are the reasons for the collapse of Bretton Woods system?
$$1$$. The refusal by the US Treasury to convert short-term liability into gold.
$$2$$. The US move to make dollar inconvertible.
$$3$$. The devaluation of US dollar in 1973.
Select the correct answer using the code given.

A
$$1$$ only

B
$$1$$ and $$2$$

C
$$2$$ and $$3$$

D
$$1, 2$$ and $$3$$
Question 10
1 / -0

What is the meaning of devaluation of money?

A
Decrease in the internal value of money

B
Decrease in the external value of money

C
Decrease in both internal and external values of money

D
The government takes back currency notes of any denomination

Solution

When the country follows a fixed exchange rate regime the government constantly has to revalue and devalue the currency in order to maintain the pegged exchange rate. When there is upwards market pressure on the currency to appreciate, the central bank will artificially devalue the currency by buying up foreign reserves.

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Re-Attempt Weekly Quiz Competition

Open Economy Macroeconomics Test 2

Result

Open Economy Macroeconomics Test 2

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SHARING IS CARING

Question 1

Cyclical disequilibrium

Secular disequilibrium

Structural disequilibrium

Sectoral disequilibrium

Solution

Question 2

$$(a) - (i), (b) - (iii), (c) - (ii), (d) - (iv)$$

$$(a) - (iv), (b) - (i), (c) - (ii), (d) - (iii)$$

$$(a) - (iv), (b) - (i), (c) - (iii), (d) - (ii)$$

$$(a) - (iii), (b) - (ii), (c) - (i), (d) - (iv)$$

Solution

Question 3

difference between the inward and outward remittances made in foreign exchange

surplus generated shown in a trading account

difference between exports and imports

none of the above

Solution

Question 4

supplies of goods and services to units within the country which can earn foreign currency to the country

exports made by units situated in EPZ areas to out of country

exports made by EOU out of the country

anticipated value of exports

Solution

Question 5

a fall in the external value of a currency caused by central bank action

a fall in the external value of a currency caused by the market forces

a fall in the external value of a currency caused by Government action

none of the above

Solution

Question 6

Balance of payments

Value of the foodgrain stock of a country

Gross National Product (GNP)

Gross National Income (GNI)

Solution

Question 7

Balance of trade deals with export and import of invisible items only.

Balance of payment deals with both visible and invisible items.

The current account is not a component of balance of payment.

All of the above.

Solution

Question 8

It is technical aid given by IMF to various countries.

It is given directly by one country to another.

It is aid with the condition that the repayment will be in inconvertible currency.

It is a commercial loan made available by various institutions jointly.

Solution

Question 9

$$1$$ only

$$1$$ and $$2$$

$$2$$ and $$3$$

$$1, 2$$ and $$3$$

Question 10

Decrease in the internal value of money

Decrease in the external value of money

Decrease in both internal and external values of money

The government takes back currency notes of any denomination

Solution

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