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Macroeconomic Issues and Analysis

Practice MCQs under Macroeconomic Issues and Analysis. 76 available Open paginated MCQ list →

Questions

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Correct options are highlighted when revealed.

1.Why is fiscal policy considered ineffective under floating exchange rate systems when there is fiscal expansion?

It limits the amount of imported goodsIt decreases government spending on public servicesIt leads to a reduction in exportsIt helps lower the government’s budget deficit

2.How do floating exchange rates typically behave over a short period?

steadyforeseeableunstablelosing value

3.What is the primary factor influencing the value of floating exchange rates in the short term?

Interest rate fluctuationsMarket competitivenessInternational trade volumesSpeculative trading activitiesGovernment interventions

4.Which two factors are most likely to negate the competitive advantage gained from a currency devaluation?

Increased costs of imports and rising wage levelsReduced prices for exports and decreased import quantitiesHigher import expenses and falling export pricesGreater wage hikes and reduced import volumes

5.When there are no international capital restrictions, what do central banks adjust to create appropriate incentives for speculators?

targets for the money supplypolicies regulating incomethe level of interest ratesgoals for inflation control

6.Under a fixed exchange rate system with no private capital movements, how does the central bank respond to a balance of payments deficit?

Purchase foreign currency and sell local currencySell foreign currency and purchase local currencyPurchase foreign currency and acquire local currencySell foreign currency and dispose of local currencyNone of the above

7.Under conditions of perfect capital mobility, what typically counterbalances interest rate differentials?

Variations in price levelsDiscrepancies in the balance of paymentsDifferences in the current accountAnticipated shifts in the exchange rate

8.In the circular flow of income model, what is most likely to rise when domestic income grows?

foreign salesgovernment tax revenuestockpiles of goodspurchases from other countries

9.If an economy initially maintains both internal and external equilibrium, what effect will a decrease in aggregate demand have on the current account?

It will lead to a current account deficitIt will result in a current account surplusIt will cause a currency revaluationIt will trigger a currency devaluationNo significant change in the current account

10.Under a fixed exchange rate system, what action does the central bank take to raise the exchange rate?

It sells foreign currency, causing the exchange rate to riseIt purchases foreign currency, leading to a decrease in the exchange rateIt sells foreign currency, resulting in a decline in the exchange rateIt buys foreign currency, causing the exchange rate to increaseBoth options A and B

11.What happens to the value of the pound when the $/£ exchange rate increases, and what occurs when the $/£ exchange rate decreases?

loses value, gains valueis revalued, is devaluedstrengthens, weakensrises in cost, falls in costremains stable, fluctuates

12.During the trough stage of the business cycle, what typically happens to aggregate demand, unemployment, inflation, and the current account balance?

Declines; decreases; decreases; moves toward a surplusDeclines; increases; decreases; moves toward a surplusRemains unchanged; low; increases; moves toward a deficitIncreases; decreases; increases; moves toward a deficit

13.At the peak phase of the business cycle, how do aggregate demand, unemployment, inflation, and the current account balance typically behave?

increase; decreases; increases; deficitdecrease; increases; decreases; surplusdecrease; decreases; decreases; surplusremain steady; low; increases; deficit

14.If a major automobile importer in Pakistan plans to bring in a large number of cars, how is the exchange rate of the Pakistani rupee likely to be impacted?

Experience greater volatility than usualStrengthen in valueWeaken in valueRemain unchanged

15.What is the likely effect on Pakistan's exchange rate if its income levels grow more rapidly than those of most other nations?

Experience greater volatility than usualIncrease in valueDecrease in valueRemain unchanged

16.If Pakistan becomes involved in a conflict in the Middle East, how is the value of its currency likely to change?

decline in valueremain unchangedexperience greater volatility than during peaceincrease in value

17.If the exchange rate shifts from £1 = 100 yen to £1 = 150 yen, assuming all other factors remain constant, how will the price of British products in Japan be affected?

Stay unchangedDeclineRiseEither rise or fallNo effect

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