All Free Economics MCQs with Answers

• A. the transportation and storage cost increased tremendously
• B. proponents of basic-needs attainment opposed food-aid
• C. U.S farm interests wanted to reduce surplus grain stocks
• D. agricultural production suffered excessively due to weather changes

Explanation: U.S. farm interests often favored reducing surplus grain stocks and limiting the costs of holding them, which helped reduce food reserves…

• A. the brain drains from LDCs to DCs
• B. the price role of political and credit-market risk in many LDCs
• C. the law of increasing returns that implies that the marginal productivity of capital is higher in LDCs
• D. the fat that the DC capital market is perfectly competitive

Explanation: Reinhart and Rogoff highlight political and credit-market risks in developing countries, which can make investment there appear less safe…

• A. is technical aid given by IMF
• B. is given directly by one country to another
• C. is aid with repayment in inconvertible currency
• D. is a loan at bankers' standards

Explanation: Bilateral aid is transferred directly from one donor country to one recipient country.

• A. and the dangers of free capital movements for LDCs with poorly developed financial institutions
• B. and the dangers of a trade deficit
• C. and the external openness of income growth among the poorest 40 percent of LDCs
• D. and MNC domination and its effects on income distribution

Explanation: Bhagwati separates the gains from free trade from the risks of unrestricted international capital flows, particularly where developing…

• A. investors are directly involved in managing the operations
• B. as in direct investment investors export goods and services abroad
• C. investors transfer the technology to local investors
• D. investors have no control over operations

Explanation: Portfolio investment involves buying financial assets without taking managerial control of the enterprise.

• A. technical assistance to stock market and financial market problems
• B. loans for post-World War II reconstruction
• C. short-term credit for international balance of payments deficits
• D. bonds denominated in U.S dollars as a loan to LDCs

Explanation: The IMF primarily supports countries facing short-term balance-of-payments difficulties by providing conditional financial assistance.

• A. the capital accounts
• B. the international balance of payments statements
• C. the long-term current account
• D. the trade accounts

Explanation: The balance of payments is the annual record of a country's economic transactions with the rest of the world, including trade, services…

• A. own domestic savings and by inflows of capital from abroad
• B. stock market and fiscal policy
• C. savings from abroad and financial outflow
• D. savings and financial liberalization

Explanation: Investment can be financed by domestic saving plus foreign saving, represented here by capital inflows from abroad.

• A. A country's trade policy has no impact on the size of its trade balance
• B. None of these answers
• C. A restrictive import quota decreases a country's net exports
• D. A restrictive imports quota increases a country's net exports

Explanation: In the standard open-economy model, the trade balance equals national saving minus domestic investment, so trade policy does not…

• A. UK net foreign investment is unchanged because only UK residents can after UK net foreign investment
• B. UK net foreign investment rises
• C. UK net foreign investment falls
• D. None of the above

Explanation: Net foreign investment equals domestic residents’ purchases of foreign assets minus foreigners’ purchases of domestic assets.

• A. depreciate and would increase UK net exports
• B. appreciate and would increase UK net exports
• C. depreciate and would decrease UK net exports
• D. appreciate, but the total value of UK net export stays the same

Explanation: Greater European demand for UK goods increases demand for pounds, causing the pound to appreciate.

• A. has no impact on the real interest rate and fails to crowed out investment
• B. decreases the real interest rate and crowds out investment
• C. None of these answers
• D. Increases the real interest rate and crowds out investment

Explanation: A larger government deficit reduces national saving, shifting the supply of loanable funds leftward.

• A. decreases a country's net exports and increases its long-run growth path
• B. increases a country's net exports and increases its long-run growth path
• C. increases a country's net exports and decreases its long-run growth path
• D. decreases a country's net exports and decreases its long-run growth path

Explanation: Capital flight sends domestic funds abroad, increasing net capital outflow and the supply of domestic currency in foreign-exchange…

• A. Foreigners who wish to buy assets in the UK
• B. BAe Systems wishing to sell aircraft to Saudi Arabia
• C. UK residents wishing to buy foreign Produced cars
• D. Lenders of loanable funds

Explanation: A UK budget deficit tends to appreciate the pound by raising interest rates and attracting capital, making UK exports more expensive…

• A. A tariff on sugar
• B. All are examples of trade policy
• C. capital flight because it increases a country's net exports
• D. an increase in the government budget deficit because it reduces a country's net exports

Explanation: A tariff is a tax on imported goods and is a direct trade-policy instrument.

• A. increase Pakistan's net exports and Pakistan's net capital outflow the same amount
• B. Increase Pakistan's net exports and decrease Pakistan's net capital outflow
• C. decreases Pakistan's net exports and Pakistan's net capital outflow the same amount
• D. decrease Pakistan's net exports and increase Pakistan's net capital outflow

Explanation: With investment and other conditions held constant, higher private saving increases the funds available for foreign investment.

• A. The pound appreciates, and UK net exports rise
• B. The pound appreciates, and UK net exports fall
• C. The pound depreciates, and UK net exports rise
• D. The pound depreciates, and UK net exports fall

Explanation: Russian purchases of UK assets increase demand for pounds, causing the pound to appreciate.

• A. An increase in Pakistan's net capital outflow increase the supply of rupees and the rupees depreciate
• B. An increase in Pakistan's net capital outflow increase the demand of rupees and the rupees appreciate
• C. An increase in Pakistan's net capital outflow increase the demand of rupees and the rupees depreciate
• D. An increase in Pakistan's net capital outflow increase the supply of rupees and the rupees appreciate

Explanation: An increase in Pakistan’s net capital outflow means residents are purchasing more foreign assets, supplying more rupees in the…

• A. A country's trade deficit and its government budget deficit
• B. The fact that if a country has a trade deficit, its trading partners must also have trade deficits
• C. the equality of a country's saving deficit and its investment deficit
• D. a country's trade deficit and its net capital outflow deficit

Explanation: The term twin deficits commonly links a government budget deficit with a trade or current-account deficit.

• A. Increase Pakistan's net exports and decrease Pakistan's net capital outflow
• B. decreases Pakistan's net exports and Pakistan's net Capital outflow the Pakistan's same amount
• C. Increase Pakistan's net exports and Pakistan's net capital outflow the same amount
• D. decreases Pakistan's net exports and increase Pakistan's net capital outflow

Explanation: A government budget deficit reduces national saving, leaving fewer domestic funds for investment at home and abroad.