Q1: 1. Which of the following is a component of the current account in an open economy?

• A) Government spending
• B) Imports
• C) National savings
• D) Investment

Q2: 2. In an open economy, the exchange rate is determined by

• A) Central bank policies
• B) Supply and demand for foreign currency
• C) Domestic inflation rate
• D) Fiscal policy

Q3: 3. Which of the following is a benefit of capital mobility in an open economy?

• A) Increased domestic interest rates
• B) Reduced access to foreign investment
• C) Diversification of investment opportunities
• D) Limited capital flows

Q4: 4. Net exports represent the difference between a country's

• A) Imports and exports
• B) Savings and investment
• C) Government spending and taxes
• D) Inflation rate and unemployment rate

Q5: 5. Which of the following policies can a government use to address a trade deficit in an open economy?

• A) Increasing tariffs on imports
• B) Lowering interest rates
• C) Decreasing taxes on exports
• D) Decreasing government spending

Q6: 6. The balance of payments in an open economy includes

• A) Government budget deficit
• B) Current account, capital account, and financial account
• C) Unemployment rate
• D) Gross domestic product

Q7: 7. Which of the following is a consequence of a fixed exchange rate system in an open economy?

• A) Exchange rate fluctuations
• B) Speculative capital flows
• C) Increased trade barriers
• D) Monetary policy independence

Q8: 8. A country's trade balance is negative when

• A) Exports exceed imports
• B) Imports exceed exports
• C) Savings exceed investment
• D) Government spending exceeds taxes

Q9: 9. Which of the following is a feature of a floating exchange rate system in an open economy?

• A) Central bank intervention to stabilize the exchange rate
• B) Fixed exchange rate with gold standard
• C) Restrictions on capital flows
• D) Exchange rate determined by market forces

Q10: 10. The capital account in an open economy records transactions related to

• A) Goods and services
• B) Financial assets and liabilities
• C) Government budget
• D) Inflation rate

Q11: 11. Which of the following factors can lead to a trade surplus in an open economy?

• A) Decreased productivity
• B) Depreciation of the domestic currency
• C) High inflation
• D) Increased consumer spending

Q12: 12. The real exchange rate in an open economy is affected by changes in

• A) Nominal interest rates
• B) Unemployment rate
• C) Domestic inflation rate
• D) Government spending

Q13: 13. Which of the following is a purpose of the financial account in an open economy?

• A) Recording government budget deficits
• B) Tracking changes in reserve holdings
• C) Measuring trade balance
• D) Monitoring consumer spending

Q14: 14. A trade deficit can be financed by

• A) Increasing domestic production
• B) Borrowing from foreign countries
• C) Decreasing exports
• D) Raising interest rates

Q15: 15. The Marshall-Lerner condition states that a depreciation of the domestic currency will improve the trade balance if

• A) Sum of price elasticities of imports and exports is less than 1
• B) Sum of price elasticities of imports and exports is greater than 1
• C) Domestic inflation rate is high
• D) Government imposes trade restrictions

Q16: 16. Which of the following is a consequence of a trade surplus in an open economy?

• A) Decreased foreign reserves
• B) Appreciation of the domestic currency
• C) Reduced exports
• D) Higher inflation

Q17: 17. The J-curve effect suggests that after a currency depreciation, the trade balance initially

• A) Improves
• B) Worsens
• C) Stabilizes
• D) Has no impact

Q18: 18. In an open economy, a decrease in foreign investment can result in

• A) Trade surplus
• B) Capital outflow
• C) Exchange rate appreciation
• D) Decreased government spending

Q19: 19. Which of the following is true about the relationship between savings and investment in an open economy?

• A) Savings always equal investment
• B) Savings exceed investment
• C) Investment exceeds savings
• D) Savings and investment are unrelated

Q20: 20. A country with a high level of capital mobility is likely to experience

• A) Controlled exchange rate
• B) Financial crises
• C) Trade restrictions
• D) Fixed interest rates

Q21: 21. Which of the following factors can lead to a current account surplus in an open economy?

• A) Increased government borrowing
• B) Strong domestic demand for imports
• C) Depreciation of the domestic currency
• D) High export competitiveness

Q22: 22. The concept of purchasing power parity (PPP) suggests that exchange rates should

• A) Be fixed by government intervention
• B) Reflect differences in inflation rates between countries
• C) Fluctuate widely in the short term
• D) Have no relation to price levels

Q23: 23. Which of the following is a disadvantage of a fixed exchange rate system in an open economy?

• A) Exchange rate stability
• B) Limited ability to adjust to economic shocks
• C) Higher capital flows
• D) Reduced speculative activities

Q24: 24. The terms of trade in an open economy refer to

• A) Regulations on international trade
• B) Exchange rate policies
• C) Ratio of export prices to import prices
• D) Capital controls

Q25: 25. Capital flight in an open economy refers to

• A) Government borrowing from foreign sources
• B) Sudden outflow of capital from a country
• C) Increase in foreign direct investment
• D) Stable investment environment