MCQs on Open Economy Macroeconomics

An open economy is one that can interact with other nations through various channels. It can establish its linkages through the output market, financial market or labour market. This form of interaction can help in the smooth flow of goods and services from one nation to another.

We have listed below a number of multiple-choice questions on Open Economy Macroeconomics to help students get a better understanding of the topic.

  1. Which of the following statements about the increase in the value of foreign commodities is true?
    1. The increase in the value of foreign commodities is known as revaluation
    2. The increase in the value of foreign commodities is known as devaluation
    3. The increase in the value of foreign commodities is known as inflation
    4. The increase in the value of foreign commodities is known as deflation
  2. Answer: b

  3. Which of the following statements about the balance of payments is correct?
    1. Exchange control is a measure intended to improve the adverse balance of payments
    2. Import substitution is a measure intended to improve the adverse balance of payments
    3. Currency devaluation is a measure intended to improve the adverse balance of payments
    4. All of the above
  4. Answer: d

  5. Which of the following statements is correct?
    1. When the export and import of tangible goods are equal, the situation is called a trade deficit
    2. When the export and import of tangible goods are equal, the situation is called a trade surplus
    3. When the export and import of tangible goods are equal, the situation is called the balance of trade
    4. When the export and import of tangible goods are equal, the situation is called the balance of payment
  6. Answer: c

  7. Which of the following is a type of foreign exchange market?
    1. Forward market
    2. Spot market
    3. Both a and b are correct
    4. Both a and b are incorrect
  8. Answer: c

  9. The foreign exchange is determined by _______.
    1. The demand for foreign currency
    2. The supply of foreign currency
    3. Supply and demand in the foreign exchange market
    4. None of the above
  10. Answer: c

  11. One of the advantages of a fixed exchange rate is ______.
    1. It helps to induce capital from abroad
    2. It helps to increase capital formation
    3. It helps to promote foreign trade
    4. All of the above
  12. Answer: d

  13. One of the demerits of a flexible exchange rate is ______.
    1. Uncertainty
    2. Instability of foreign exchange
    3. Adverse results due to the low rate
    4. All of the above
  14. Answer: d

  15. The foreign exchange gets determined by _______.
    1. Foreign direct investment
    2. Government transactions
    3. Private transactions
    4. All of the above
  16. Answer: d

  17. The foreign exchange transactions that are dependent on other transactions are known as _________.
    1. Autonomous transactions
    2. Accommodating transactions
    3. Current account transactions
    4. None of the above
  18. Answer: b

  19. The structure of the balance of payment accounts includes the _______.
    1. Capital account
    2. Current account
    3. Both a and b are correct
    4. Both a and b are incorrect
  20. Answer: c

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