Question 1 The accumulation of international debt increased the debt service req

Question

Question 1

The accumulation of international debt increased the debt service requirements of the indebted countries. After the debt crisis began, this caused

Select one:

a. large capital inflows to service the debt.

b. a reduction in inequality.

c. the adoption of strongly contractionary policies to reduce consumption and government deficits.

d. the adoption of expansionary policies to return to growth.

e. an intensification of industrial policies targeted on import substitutes.

Question 2

A single currency area requires

Select one:

a. immobile labor and synchronized business cycles.

b. mobile labor and synchronized business cycles.

c. immobile labor and mobile capital.

d. mobile labor and unsynchronized business cycles.

e. a political union.

Question 3

Which of the following is TRUE?

Select one:

a. India has a larger population than China currently.

b. India began reforming and opening its economy prior to China.

c. India has a larger manufacturing sector than China.

d. At the end of the twenty-first century, China will have a larger population than India.

e. India is the world's largest democracy.

Question 4

A major reason for creating the European Monetary System was to

Select one:

a. eliminate the need for central banks.

b. create a single currency.

c. avoid competitive devaluations.

d. unify banking laws and permit cross-border investment.

e. reduce the costs of changing currencies.

Question 5

One economic advantage of a large share of exports in GDP is that countries

Select one:

a. can reduce their budget deficits.

b. can maintain lower rates of unemployment.

c. can purchase the imports they need.

d. will have greater equality in their incomes.

e. develop more labor-intensive industry.

Explanation / Answer

1) Solution: the adoption of strongly contractionary policies to reduce consumption and government deficits

Explanation: The debt crisis leads to adoption of strongly contractionary policies to control the deficit and economic crisis

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2) Solution: mobile labor and synchronized business cycles

Explanation: A single currency area needs labor mobility as well as synchronized business cycles

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3) Solution: India is the world's largest democracy

Explanation: The world's largest democracy is India

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4) Solution: avoid competitive devaluations.

Explanation: The primary motive of European Monetary System for avoiding the competitive devaluations

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5) Solution: can purchase the imports they need.

Explanation: A large share of exports in GDP allows imports of goods as per requirement.

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