World Economy- Part 1

Wrold Economics

1. Which international organization is primarily responsible for monitoring global financial stability and providing financial assistance to countries facing balance of payments problems?

a) World Bank b) World Trade Organization (WTO) c) International Monetary Fund (IMF) d) Organisation for Economic Co-operation and Development (OECD)

c) The IMF monitors global financial stability and provides financial assistance to countries facing balance of payments issues to help stabilize their economies.

2. What is 'Beggar-Thy-Neighbor' policy in international trade?

a) A policy aimed at reducing domestic inflation by increasing exports b) A policy of promoting exports and reducing imports through tariffs, subsidies, and quotas, at the expense of other countries c) A strategy for increasing foreign aid to neighboring countries d) A policy to promote domestic industries without considering international trade relations

b) 'Beggar-Thy-Neighbor' is a protectionist policy aimed at improving a country’s economic condition at the expense of its trading partners by devaluing currency or imposing tariffs.

3. Which economic indicator measures the total value of goods and services produced within a country’s borders, adjusted for inflation?

a) Nominal Gross Domestic Product (GDP) b) Real Gross Domestic Product (GDP) c) Gross National Income (GNI) d) Purchasing Power Parity (PPP)

b) Real GDP measures the total value of goods and services produced within a country’s borders, adjusted for inflation, providing a more accurate reflection of economic growth.

4. What is the primary purpose of the 'Special Drawing Rights' (SDR) issued by the IMF?

a) To serve as an international reserve asset and supplement member countries' official reserves b) To provide low-interest loans to developing countries c) To stabilize global oil prices d) To facilitate international trade negotiations

a) Special Drawing Rights (SDRs) are international reserve assets created by the IMF to supplement the official reserves of its member countries and provide liquidity support.

5. What does the 'Triffin Dilemma' describe in the context of the global monetary system?

a) The conflict between short-term domestic goals and long-term international responsibilities for a country whose currency serves as a global reserve b) The difficulty of achieving full employment and price stability simultaneously c) The challenge of maintaining a fixed exchange rate while allowing free capital mobility d) The problem of balancing government budgets in a recession

a) The Triffin Dilemma refers to the conflict of interest that arises when a country’s currency serves as the global reserve currency, causing a need to run trade deficits to supply liquidity to the world, which could eventually undermine confidence in the currency.

6. What is 'Capital Flight'?

a) The rapid outflow of capital from a country due to economic or political instability b) The inflow of foreign investment into a developing economy c) The use of capital controls to stabilize an economy d) The transfer of capital from one sector of the economy to another

a) Capital flight occurs when assets or money rapidly flow out of a country due to economic or political instability, potentially causing a sharp decline in the value of the currency and loss of foreign exchange reserves.

7. In the context of international finance, what does the 'Impossible Trinity' (also known as the Trilemma) state?

a) It is impossible to have a balanced budget, low inflation, and full employment simultaneously b) It is impossible to have a fixed foreign exchange rate, free capital movement, and an independent monetary policy simultaneously c) It is impossible to achieve economic growth, environmental sustainability, and social equality simultaneously d) It is impossible to reduce taxes, increase public spending, and reduce public debt simultaneously

b) The Impossible Trinity or Trilemma in international finance states that a country cannot simultaneously have a fixed foreign exchange rate, free capital movement, and an independent monetary policy.

8. Which theory in international trade suggests that countries will export goods that use their abundant factors of production intensively?

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

c) The Heckscher-Ohlin Theory suggests that countries export goods that intensively use their abundant factors of production (like labor or capital) and import goods that use their scarce factors intensively.

9. What is the 'J-Curve Effect' in the context of currency devaluation?

a) A temporary deterioration in a country’s trade balance following a currency devaluation, followed by a gradual improvement b) An immediate improvement in the trade balance after a currency devaluation c) A long-term decline in export volumes after a currency appreciation d) A situation where inflation rises sharply following currency devaluation

a) The J-Curve Effect occurs when a country's trade balance initially worsens following a currency devaluation due to higher prices of imports before eventually improving as export volumes increase over time.

10. What does the term 'Quantitative Tightening' (QT) refer to in monetary policy?

a) A decrease in interest rates to stimulate economic activity b) The central bank’s sale of government bonds to reduce the money supply c) The purchase of long-term government securities by the central bank to lower interest rates d) The adjustment of bank reserve requirements to control inflation

b) Quantitative Tightening (QT) is a monetary policy used by central banks to reduce the amount of liquidity in the economy by selling government bonds, thus increasing interest rates and reducing inflationary pressures.

If any answer found wrong, Please comment.

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