World Economy- Part 2

World Economics

1. What does the "J-Curve" effect describe in international economics?

a) The long-term effects of inflation on a country's economy b) The short-term deterioration and long-term improvement in a country's trade balance following a currency depreciation c) The relationship between unemployment and inflation d) The effects of economic sanctions on a country's GDP growth

b) The J-Curve effect describes how a country's trade deficit initially worsens after a depreciation of its currency because the prices of imports rise before the volume of exports increases, eventually improving the trade balance over time.

2. What does the term "Eurobond" refer to in global finance?

a) Bonds issued by the European Central Bank b) Bonds denominated in euros and issued outside the European Union c) Bonds issued in a currency not native to the country where it is issued d) Government bonds issued by Eurozone countries

c) A Eurobond is a bond issued in a currency that is not the native currency of the country where it is issued, allowing issuers to take advantage of favorable regulatory conditions and markets.

3. What is "deleveraging" in the context of financial markets?

a) The process of increasing leverage by borrowing more funds b) The reduction of debt by selling off assets or raising capital c) The enhancement of liquidity through bond issuance d) The strategy of maintaining debt levels to match inflation

b) Deleveraging involves reducing overall debt levels by selling off assets, raising equity, or reducing spending to strengthen a balance sheet and reduce financial risk.

4. What is the primary purpose of a "sovereign wealth fund" (SWF)?

a) To provide emergency loans to struggling economies b) To invest national savings for future generations and economic stability c) To regulate financial markets and prevent speculative bubbles d) To offer subsidies to domestic industries

b) A sovereign wealth fund (SWF) is a state-owned investment fund that invests in a variety of assets to preserve wealth for future generations and provide economic stability

5. What does the term "Purchasing Power Parity" (PPP) measure in economics?

a) The ability of a country to purchase goods and services compared to another country b) The ratio of domestic savings to investment c) The equilibrium exchange rate at which foreign exchange reserves remain constant d) The percentage of income spent on luxury goods

a) Purchasing Power Parity (PPP) is an economic theory that compares different countries' currencies through a "basket of goods" approach, determining the relative value of currencies based on the cost of living and inflation rates.

6. Which economic model explains the cycle of overproduction and underproduction in capitalist economies due to changes in aggregate demand?

a) Solow Growth Model b) Harrod-Domar Model c) Business Cycle Model d) IS-LM Model

c) The Business Cycle Model illustrates the cyclical fluctuations in economic activity over time, characterized by periods of economic expansion (growth) and contraction (recession), often due to changes in aggregate demand.

7. Which term describes a situation where a country or firm achieves the lowest cost of production due to economies of scale?

a) Comparative Advantage b) Absolute Advantage c) Economies of Scope d) Cost Leadership

d) Cost leadership refers to a strategy where a country or firm achieves the lowest cost of production, often through economies of scale, allowing it to offer lower prices and gain a competitive advantage.

8. What is "Ricardian equivalence" in economic theory?

a) The idea that consumers adjust their spending in anticipation of future tax changes b) The concept that capital and labor are perfect substitutes in production c) The belief that technological progress is the primary driver of economic growth d) The notion that international trade is a zero-sum game

a) Ricardian equivalence suggests that when a government increases deficit spending, individuals anticipate future taxes to repay the debt, so they save more and spend less, offsetting the intended stimulative effect of government spending.

9. What is the primary objective of "antitrust laws"?

a) To protect intellectual property rights b) To regulate international trade agreements c) To prevent monopolies and promote competition in the marketplace d) To control inflation and stabilize currency

c) Antitrust laws are regulations that promote competition by prohibiting monopolistic practices and ensuring fair competition in the marketplace.

10. In international economics, what does the "gravity model" suggest about trade flows?

a) Trade flows depend on the relative inflation rates of trading partners b) Trade flows are proportional to the size of the economies and inversely proportional to the distance between them c) Trade flows increase when countries have a common currency d) Trade flows are determined solely by comparative advantage

b) The gravity model in international economics predicts that larger economies will have more trade with each other, and that distance negatively impacts trade flows due to higher transportation costs.

If any answer found wrong, Please comment.

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