Question 56 Consider the following two statements. I.The East Asian financial cr

Question

Question 56

Consider the following two statements. I.The East Asian financial crisis was an example of macroeconomic imbalances. II.The Latin American debt crisis was an example of macroeconomic imbalances.

Select one:

a. I is false and II is true.

b. Both statements are false.

c. I is true, and II is false.

d. Both statements are true.

Question 57

People sometimes worry that American trade with other countries will lead to large U.S. trade deficits and the movement of massive amounts of American capital out of the country. This worry is unfounded because countries cannot

Select one:

a. increase savings at the same time that a trade deficit grows.

b. have both current account and financial account deficits at the same time.

c. increase their trade with other countries without increasing their savings.

d. invest more than they save.

e. spend more than they earn.

Question 58

The Lost Decade refers to the years between approximately

Select one:

a. 1960 and 1970.

b. 1980 and 1990.

c. 1972 and 1980.

d. 1987 and 1997.

Question 59

Which of the following is NOT part of the current account?

Select one:

a. Purchase of a foreign bond

b. Purchase of a plane ticket on a foreign airline

c. Shipment of food aid to a poor country

d. Dividends received on a foreign investment

Question 60

Purchasing power parity (PPP) measurements of income are a way to make international comparisons by correcting for national differences in

Select one:

a. inflation.

b. prices of goods and services.

c. unemployment.

d. economic growth.

Explanation / Answer

56. Note that almost all the financial crisis is a result of macroeconomic imbalances within economies. Both East Asian Financial crisis as well the Latin American debt crisis are the examples of macroeconomic imbalances.

Option D seems to be the correct answer.

57. American trade with other countries may or may not lead to large U.S. deficits and movement of massive amounts of American capital out of the country. It really depends whether we have a trade surplus (i.e. Exports > Imports) or we have a situation of trade deficit.

Thus, worry is unfounded because:

US cannot increase their trade with other countries without increasing their savings.

Consider the US Economy, they cannot buy more than what they save for spending on goods and services. Thus, without increasing savings(capital), it is not possible to increase the imports or exports at the same time.

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