Top 250+ Solved International Economics MCQ Questions Answer
Q. Assume a two-country world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP) as related to these two countries?
a. If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken.
b. If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will weaken.
c. If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will strengthen.
d. If Country B's inflation rate exceeds Country A's inflation rate, Country A's currency will weaken.
Q. The international Fisher effect (IFE) suggests that:
a. a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate.
b. a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate.
c. a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate.
d. a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
Q. According to the IFE, if British interest rates exceed U.S. interest rates:
a. the British pound's value will remain constant.
b. the British pound will depreciate against the dollar.
c. the British inflation rate will decrease.
d. the forward rate of the British pound will contain a premium.
Q. If interest rates on the euro are consistently below U.S. interest rates, then for the international Fisher effect (IFE) to hold:
a. the value of the euro would often appreciate against the dollar.
b. the value of the euro would often depreciate against the dollar.
c. the value of the euro would remain constant most of the time.
d. the value of the euro would appreciate in some periods and depreciate in other periods, but on average have a zero rate of appreciation.
Q. If interest rate parity holds, then the one-year forward rate of a currency will ______ the predicted spot rate of the currency in one year according to the international Fisher effect.
a. greater than
b. less than
c. equal to
d. answer is dependent on whether the forward rate has a discount or premium
Q. The balance of payments equals:
a. The difference between household spending and income
b. The difference between government spending and income
c. A measure of the value of economic transactions between residents of a country and the rest of the world
d. The difference between inflation and unemployment
Q. If there were a balance of payments deficit then in a floating exchange rate system:
a. The external value of the currency would tend to fall
b. The external value of the currency would tend to rise
c. The injections from trade are greater than the withdrawals
d. Aggregate demand is increasing
Q. If the value of the pound in other currencies is strong, then other things being equal:
a. The price of UK products abroad in foreign currency will fall
b. The price of UK products abroad in foreign currency will rise
c. The price of UK products in the UK will rise
d. The price of UK products in the UK will fall
Q. If the value of the pound in terms of other currencies rises:
a. The spending on UK exports in pounds must rise
b. The spending on UK exports in foreign currency will rise if demand is price elastic
c. The demand for UK exports will rise
d. The spending on UK exports in foreign currency will fall if demand for UK exports is price elastic
Q. The supply of pounds to the currency market will be upward sloping if:
a. The demand for UK exports is price elastic
b. The demand for UK exports is price inelastic
c. The demand for imports into the UK is price elastic
d. The demand for imports into the UK is price inelastic
Q. A fall in the value of the pound is likely to decrease spending on imports if:
a. The price elasticity of demand for imports is price elastic
b. The price elasticity of demand for imports is price inelastic
c. The price elasticity of demand for imports has a unit price elasticity
d. The price elasticity of demand for exports is price elastic
Q. If the exchange rate is above the equilibrium level then in a floating exchange rate system:
a. There is excess demand and the exchange rate should fall
b. There is excess supply and the exchange rate should fall
c. There is excess demand and the exchange rate should rise
d. There is excess supply and the exchange rate should rise
Q. If the exchange rate is below the equilibrium level then in a floating exchange rate system:
a. There is excess demand and the exchange rate should fall
b. There is excess supply and the exchange rate should fall
c. There is excess demand and the exchange rate should rise
d. There is excess supply and the exchange rate should rise
Q. A depreciation of a currency occurs when:
a. The value of the currency falls
b. The value of the currency increases
c. Inflation falls
d. The balance of payments improves