World Economics- Part 3

World Economics

1. In the context of international economics, what does the 'Balassa-Samuelson Effect' describe?

a) The impact of tariff reductions on global trade volumes b) The tendency for prices and wages in countries with rapidly growing productivity to rise, leading to an appreciation of the real exchange rate c) The relationship between interest rates and exchange rate fluctuations d) The effects of foreign direct investment on domestic economies

b) The Balassa-Samuelson Effect describes how countries with rapidly growing productivity in tradable sectors experience higher wages and prices in both tradable and non-tradable sectors, leading to an appreciation of the real exchange rate.

2. Which economic concept describes a situation where the benefits of economic growth are unevenly distributed across a population?

a) Gini Coefficient b) Kuznets Curve c) Pareto Efficiency d) Lorenz Curve

b) The Kuznets Curve hypothesizes that as an economy develops, market forces first increase and then decrease economic inequality, resulting in an inverted U-shaped curve.

3. What is 'Seigniorage' in the context of monetary economics?

a) The revenue earned by a government from the difference between the face value of money and the cost to produce it b) The cost incurred by central banks in managing foreign exchange reserves c) The cost incurred by central banks in managing foreign exchange reserves d) The revenue generated from interest rates on government bonds

a) Seigniorage is the profit made by a government by issuing currency, especially the difference between the face value of coins and notes and their production costs.

4. Which economic theory suggests that countries should specialize in producing goods for which they have a lower opportunity cost?

a) Absolute Advantage Theory b) Comparative Advantage Theory c) Heckscher-Ohlin Theory d) New Growth Theory

b) Comparative Advantage Theory suggests that countries benefit from specializing in producing goods for which they have the lowest opportunity cost, leading to more efficient global resource allocation and trade benefits.

5. What does the term 'Hyperinflation' refer to in an economic context?

a) A steady, moderate increase in prices over time b) A period of negative inflation or deflation c) An extremely high and typically accelerating inflation rate, often exceeding 50% per month d) A controlled increase in inflation to boost economic growth

c) Hyperinflation is an extremely high and typically accelerating inflation rate, often exceeding 50% per month, leading to a rapid erosion of a currency's real value.

6. In international finance, what does the term 'Carry Trade' refer to?

a) Borrowing in a low-interest-rate currency and investing in a high-interest-rate currency b) The act of diversifying investment portfolios across multiple currencies c) The strategy of investing in emerging market bonds d) The practice of central banks intervening in foreign exchange markets

a) Carry Trade involves borrowing in a currency with a low-interest rate and converting the borrowed amount into a currency that offers a higher interest rate, profiting from the interest rate differential.

7. Which term refers to the practice of businesses from developed countries relocating their production to developing countries to reduce costs?

a) Outsourcing b) Vertical Integration c) Offshoring d) Economies of Scale

c) Offshoring refers to the relocation of business processes or production from developed countries to developing countries to take advantage of lower costs, such as labor or materials.

8. What is the 'Impossible Exchange' in international trade theory?

a) A trade policy where countries mutually agree not to trade specific goods b) A situation where trade balances are impossible to achieve without exchange rate intervention c) The difficulty in maintaining a balance of payments equilibrium without currency depreciation d) The difficulty in maintaining a balance of payments equilibrium without currency depreciation

b) The 'Impossible Exchange' highlights the challenge of maintaining balanced trade without adjustments in exchange rates, often necessitating intervention by central banks or governments.

9. What is the primary goal of the Bretton Woods Conference held in 1944?

a) To create the World Trade Organization (WTO) b) To establish a new global monetary order with fixed exchange rates and the U.S. dollar as the central reserve currency c) To launch a global initiative for poverty reduction d) To negotiate tariffs and trade agreements among member nations

b) The Bretton Woods Conference established a new international monetary system with fixed exchange rates, where the U.S. dollar was pegged to gold, and other currencies were pegged to the dollar.

10. Which economic concept explains the phenomenon where countries experience rapid growth in certain industries, often at the expense of other sectors, leading to economic imbalance?

a) Comparative Advantage b) Resource Curse c) Creative Destruction d) Dutch Disease

d) Dutch Disease refers to a situation where the discovery of a natural resource, like oil, leads to a decline in other sectors of the economy. It occurs because the influx of foreign currency from the resource sector appreciates the country's currency, making other exports less competitive and leading to economic imbalances.

If any answer found wrong, Please comment.

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