Chapter 2

Recently, the U.S. experienced an annual balance of trade representing a ____.

• large surplus (exceeding $100 billion)

• small surplus

• level of zero

• deficit

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.

• increase; increase

• increase; decrease

• decrease; decrease

• decrease; increase

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).

• decrease

• increase

• remain unaffected

• either A or C are possible

____ purchases more U.S. exports than the other countries listed here.

• Italy

• Spain

• Mexico

• Canada

An increase in the current account deficit will place ____ pressure on the home currency value, other things equal.

• upward

• downward

• no

• upward or downward (depending on the size of the deficit)

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).

• increase

• have no impact on

• reduce

• all of the above are equally possible

The International Financial Corporation was established to:

• enhance development solely in Asia through grants.

• enhance economic development through non-subsidized loans (at market interest rates).

• enhance economic development through low-interest rate loans (below-market rates).

• enhance economic development of the private sector through investment in stock of corporations.

The World Bank was established to:

• enhance development solely in Asia through grants.

• enhance economic development through non-subsidized loans (at market interest rates).

• enhance economic development through low-interest rate loans (below-market rates).

• enhance economic development of the private sector through investment in stock of corporations.

The International Development Association was established to:

• enhance development solely in Asia through grants.

• enhance economic development through non-subsidized loans (at market interest rates).

• enhance economic development through low-interest rate loans (below-market rates).

• enhance economic development of the private sector through investment in stock of corporations.

Which of the following would likely have the least direct influence on a country's current account?

• inflation.

• national income.

• exchange rates.

• tariffs.

• a tax on income earned from foreign stocks.