All Free Economics MCQs with Answers

• A. involves receipts from foreigners
• B. involves payments to foreigners
• C. increases the domestic money supply
• D. decreases the demand for foreign exchange

Explanation: A credit entry records a transaction that earns or receives foreign exchange, such as exports or income received from abroad.

• A. exporter
• B. importer
• C. debtor
• D. creditor

Explanation: The United States shifted from a net creditor to a net international debtor in the mid-1980s, reflecting its accumulated external…

• A. statistical discrepancy
• B. balance of payments
• C. balance of trade
• D. trade deficit

Explanation: When the current-account and capital-account balances do not exactly offset, the balancing entry is called the statistical discrepancy.

• A. current account the capital account
• B. current account the trade account
• C. trade account the capital account
• D. current account the reserve account

Explanation: The balance of payments is conventionally divided into the current account, covering goods, services, income and transfers, and the…

• A. balance of trade
• B. capital account
• C. current account
• D. balance of payments

Explanation: The balance of payments records a country's transactions with the rest of the world, including goods, services, income and asset…

• A. capital account transactions
• B. current account transactions
• C. unilateral transfer transactions
• D. merchandise trade transactions

Explanation: Direct investment and purchases of securities involve ownership of foreign assets and are therefore recorded as capital or financial…

• A. is true by definition in all possible circumstances
• B. is supported by recent U.S history
• C. focuses only on the overall economy and is thus always true
• D. fails to recognize that a current account deficit is matched by an equal inflow of foreign funds which finances employment increasing investment spending

Explanation: A current-account deficit is matched by a capital or financial-account surplus, meaning foreign funds flow into the country.

• A. merchandise trade account
• B. services account
• C. unilateral transfers account
• D. capital account

Explanation: Tourism and travel are international services rather than physical merchandise, so their receipts and payments are recorded in the…

• A. a credit item in the current account
• B. a debit item in the capital account
• C. a credit item in the capital account
• D. a debit item in the current account

Explanation: When foreigners buy U.S. government securities, the United States receives foreign funds and records a capital or financial inflow.

• A. the sum of merchandise trade and services
• B. the current account plus long-term capital
• C. the value of merchandise exports minus imports
• D. short-term capital plus the basic balance

Explanation: Net exports in GDP are calculated as exports of goods and services minus imports of goods and services.

• A. engage in more government spending
• B. reduce government taxes
• C. increases private investment spending
• D. decrease domestic consumption

Explanation: Reducing domestic consumption generally lowers spending on imported goods and services, which improves the current-account balance.

• A. merchandise trade deficits
• B. merchandise trade surpluses
• C. capital/financial account surpluses
• D. capital/financial account deficits

Explanation: A current-account deficit means the country spends more abroad than it earns and must be financed by a net inflow of foreign capital.

• A. mean a loss of foreign exchange
• B. bring foreign exchange into the country
• C. indicate a surplus exist
• D. exist at the bottom line after all accounts are totaled

Explanation: A debit entry represents a payment to foreigners or another transaction that uses foreign exchange, so it records an outflow or loss of…

• A. the value of trade in merchandise
• B. services
• C. unilateral transfers
• D. All of the above

Explanation: The current account records merchandise trade, trade in services, and unilateral transfers such as gifts and remittances.

• A. capital outflow would cause the nation's currency to depreciate contributing to a trade deficit
• B. capital inflow would cause the nation's currency to depreciate contributing to a trade deficit
• C. capital inflow would cause the nation's currency to appreciate contributing to a trade deficit
• D. capital outflow would cause the nation's currency to appreciate contributing to a trade deficit

Explanation: A capital-account surplus generally reflects capital inflows, which increase demand for the domestic currency and cause appreciation.

• A. investment inflows
• B. merchandise exports
• C. payments for American services to foreigners
• D. private gives to foreign residents

Explanation: Merchandise exports, investment inflows, and payments received for services supplied to foreigners are credit items.

• A. insure that the sum of all debits matches the sum of all credits
• B. insure that trade imports equals the value of trade exports
• C. obtain an accurate account of a balance of payments deficit
• D. obtain an accurate account of a balance of payments surplus

Explanation: Because the balance of payments must balance in accounting terms, the statistical discrepancy records errors and omissions needed to make…

• A. larger savings pool available to finance domestic spending
• B. higher interest rate which leads to lower domestic investment
• C. loss of funds to trading partners overseas
• D. decrease in its services exports to other countries

Explanation: A net international debtor has previously received more foreign funds than it has invested abroad, so foreign capital initially enlarges…

• A. IMF decentralization; World Bank dissolution
• B. new loans from multilateral agencies and surplus countries; debt reduction or write-downs
• C. structural adjustment loans for LDCs experiencing unanticipated external shocks; renewed emphases on macroeconomic stabilization programs
• D. debt relief for at leas three-fourths of the eligible HIPCs; shorter requirements for adjustment programs

Explanation: The Baker Plan sought to address the debt crisis through additional lending from multilateral institutions and surplus countries.

• A. Structural adjustment loans
• B. sectoral adjustment loans
• C. internal adjustment loans
• D. external leverage loans

Explanation: Sectoral adjustment loans were designed to support reforms in particular sectors such as agriculture, industry, energy, education, and…