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Open Economy Macroeconomics Test 6

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Open Economy Macroeconomics Test 6
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Weekly Quiz Competition
  • Question 1
    1 / -0
    Balance of payment on current account excludes ______.
    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. Thus borrowing and lending is recorded here. It may also maintain an official reserve account to run either a fixed exchange rate regime or a managed float regime. It accounts the country's transactions with the rest of the world.

  • Question 2
    1 / -0
    Surplus in capital account means ________.
    Solution
    Balance of capital account refers to the balance of capital transfers - borrowing and lending from abroad and sales and purchases of assets (export and import of capital), gold and foreign exchange from other countries. It is in equilibrium when domestic and foreign saving and investment are equal. Thus a surplus implies that savings in the country exceed investments abroad.
  • Question 3
    1 / -0
    Which of these is not a measure to maintain balance of payment in order?
  • Question 4
    1 / -0
    Which of these measures will reduce deficit on the current account of the balance of payments through the use of fiscal policy?
    Solution
    Employing the tool of increased direct taxation, will lead to consumer disposable income falling. Thus , the consumers will reduce consumption overall. This will also include a reduction spending on imports and thus the amount of money flowing out of the country is likely to reduce, leading to a reducing current account deficit. The other mentioned tools would also serve to be useful, however, they are not a part of fiscal policy.
  • Question 5
    1 / -0
    Layla a resident of country Y  is working with country Z. She remits 15,000 to her family back in country Y. This will show as __________ in the balance of payment account.
    Solution
    The amount will show up as a unilateral transfer on both countries' balance of payments as the transfer of money is leaving/entering the economy and it must be recorded as it will affect the balance of payments.
  • Question 6
    1 / -0
    Which of these can be a cause of unfavorable balance of payment in developing countries?
  • Question 7
    1 / -0
    Primary gold is of ____ carat.
  • Question 8
    1 / -0
    Resident of Y country goes to X country and utilize the services of Y country,this transaction will be shown as  ______ on the balance of payment account.
  • Question 9
    1 / -0
    Devaluation of currency means a ________.
    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 10
    1 / -0
    ADR stands for _____.
    Solution
    American Depositary Receipts (ADR) are negotiable security instruments that are issued by a US Bank that represent a specific number of shares in a foreign company that is traded in US financial markets. Hence, correct answer is option C.
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