Test Items
Chapter 1 – Introductory Finance Issues: Current Patterns, Past History,
and International Institutions
True/False Questions
1. Foreign Direct Investment (FDI) around the world taken as a percentage of the world GDP,
declined during 1980 to 2005, suggesting an overall decrease in the interconnectedness between
nations.
False; Moderate
2. Under the Uruguay round of trade discussions countries not only agreed to lower tariffs on goods
trade but also began to liberalize the agriculture and services markets.
True; Easy
3. International finance is a subfield in international economics that applies microeconomic models
to help understand the effects of trade policies on business and economics.
False; Easy
4. The focus of international trade is primarily on the significance of trade imbalances, the
determinants of exchange rates, and the aggregate effects of government monetary and fiscal
policies.
False; Easy
5. During 1948 to 2008, overall annual world exports measured in billions of U.S. dollars revealed
an exponential growth.
True; Easy
6. In the post-World War II era, there was a steady increase in trade barriers in the form of tariffs
and quotas.
False; Easy
7. The decent growth in the number of regional free trade agreements at recent times can be
attributed partly to the diligent liberalization efforts of the GATT and trade talks conducted by the
WTO.
False; Easy
8. Data on per capita GDP 2009, in billions of U.S. dollars, based on purchasing power parity (PPP)
reveals that China, Japan, and India together produce almost half of the total world production.
False; Moderate
9. In 2009, per capita GDP in the U.S. recorded in billions of U.S. dollars, based on purchasing
power parity (PPP), surpassed that in countries like Singapore and Luxembourg.
False; Moderate
10. GDP represents the total economic size of a country.
True; Easy
11. The United States, the European Union, and Japan represent the largest economies in the world
True; Easy
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12. The unemployment rate measures the percentage of the total population in a country who are not
contributing to the national income.
False; Easy
13. If the rate of inflation in a country is too high it usually contributes to a less effective functioning
of an economy.
True; Easy
14. The government usually finances a budget deficit through open market purchase of T-Bills.
True; Easy
15. The total outstanding balance of IOUs that the government must pay back in the future is referred
to as the nation’s international indebtedness.
False; Moderate
16. In 2009, the budget deficit in the U.S. and Japan exceeded 12 percent, while the same in India and
Russia was below 5 percent.
False; Easy
17. In 2009, national debt as a percentage of GDP exceeded 100 percent in China and Japan.
False; Easy
18. Under the traditional gold standard, a country sets a price for gold and then issues currency such
that the amount in circulation is equivalent to the value of gold held in reserve.
True; Easy
19. After the collapse of the Bretton Woods system of exchange rates countries have tried to maintain
credible fixed exchange rates by fixing their currencies to the euro.
False; Moderate
20. Russia is listed as fixing to a composite currency because it has replaced its central bank with a
currency board that is mandated by law to follow procedures that will automatically keep its
currency fixed in value.
False; Easy
21. If a country experiences a trade deficit during a particular year it is said to be in a net creditor
position.
False; Easy
22. The central banks in India and Indonesia sometimes allow the currency to float freely, but at other
times nudge the exchange rate in one direction or another. This implies that these two nations are
following a crawling peg.
False; Moderate
23. The international debt of a nation is the public and the private indebtedness to foreign creditors.
False; Easy
24. China and Russia are examples of countries that have serious international debt concerns, with
external debts greater than 80 percent of their GDPs.
False; Moderate
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25. The U.S. has been running persistent trade surpluses over time and is by far the largest creditor
country in the world.
False; Easy
26. In the United States, a recession is generally defined as two successive quarters of negative real
GDP growth.
True; Easy
27. The bursting of an economic bubble is usually followed by runaway inflation.
False; Easy
28. When an economy is moving from a peak to a trough it is said to be in a recession.
False; Moderate
29. The U.S. experienced three successive quarters of significant GDP decline between the second
quarter of 2008 and the end of the first quarter in 2009.
True; Easy
30. In late 1982, the unemployment rate in the U.S. had peaked to 10.8 percent and was the highest
experienced by the country in the post-World War II period.
True; Easy
31. Of all the U.S. expansions since 1854 classified by the NBER, the longest was 120 months in the
1990s.
True; Moderate
32. Suppose during a year, the U.S. fixes the dollar at $22.50 per ounce of gold, while Great Britain
fixes its currency at £4.50 per ounce. This implies the dollar and pound are fixed to each other at
a rate of 5$/£.
True; Moderate
33. Fixed exchange rate systems have a potential of preventing excessive inflation.
True; Easy
34. Under the gold-exchange standard, the British pound was singled out as the international reserve
currency.
False; Easy
35. The GATT was a subagreement of the ITO that was designed to promote multilateral tariff
reductions.
True; Easy
36. Under the gold-exchange standard the countries had agreed not to exchange officially held gold
deposits for currency.
True; Easy
Multiple Choice Questions
1. International trade is a subfield of international economics that describes:
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a. interrelationships between aggregate economic variables such as GDP and unemployment
rates.
b. economic relationships between consumers, firms, factory owners, and the government.
c. economic relationships between inflation rates, trade balances, exchange rates, and interest
rates.
d. the pros and cons of fixed versus floating exchange rate systems.
e. the interrelationships between trade and fiscal imbalances.
b; Easy
2. The _____ was created to provide a forum for regular discussion of trade matters, and to
implement a well-defined process for settling trade disputes that might arise among countries.
a. World Trade Organization
b. International Monetary Fund
c. General Agreement on Tariff and Trade
d. World Bank
e. USTR
b; Easy
3. Under the _____ round of trade talks finalized in 1994, countries not only agreed to lower tariffs
on goods trade but also initiated discussions on the liberalization of the agriculture and services
markets.
a. Tokyo
b. Doha
c. Uruguay
d. Geneva
e. Cuba
c; Moderate
4. _____ refers to the economic, social, cultural, or environmental changes that tend to interconnect
peoples around the world.
a. Socialism
b. International trade
c. Regionalization
d. Privatization
e. Globalization
e; Easy
5. Which of the following relates to international trade?
a. Effect of a fiscal policy on GDP growth
b. Impact of an expansionary monetary policy on exchange rates
c. A comparison between free trade and protectionism
d. The pros and cons of fixed versus floating exchange rate systems
e. The interrelation between real interest rates and exchange rates
c; Easy
6. International economics is a field of study that assesses the implications of international trade,
_____, and international borrowing and lending.
a. foreign aid
b. foreign exchange
c. fiscal policies
d. international investment
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e. monetary policies
d; Moderate
7. Identify the correct statement.
a. International finance applies microeconomic models to help understand the international
economy.
b. International finance studies the interrelationships among aggregate economic variables such
as GDP, unemployment rates, inflation rates, trade balances, exchange rates, interest rates,
etc.
c. The focus of international finance is on the controversy between free trade and protectionism.
d. International finance studies the reasons behind the cross country disparity in national
income.
e. International finance describes the economic relationships among consumers, firms, factory
owners, and the government
b; Easy
8. Between 1948 and 1994, _____ rounds of trade negotiations have been completed under the
GATT.
a. nine
b. five
c. eight
d. four
e. one
c; Easy
9. ______ measures the total value of all goods and services produced by a country during a year
and is a measure of the extent of economic activity in a country
a. Gross domestic product
b. Net national product
c. National income
d. Gross national product
e. Balance of Finance
a; Moderate
10. Data on GDP based on purchasing power parity (PPP) in billions of U.S. dollars, for the year
2009 revealed that:
a. the European Union alone accounts for almost two-third of the total world production.
b. the United States is the largest contributor to the total world production followed closely by
China and Japan.
c. the United States and European Union together make up more that 50 percent of the world
economy.
d. the United States and European Union each make up about one-third of the world economy.
e. the United States, Japan and European Union produce almost one half of the total world
production.
e; Easy
11. Which of the following facts are displayed by the 2009 data on GDP per capita based on
purchasing power parity (PPP) in billions of U.S. dollars?
a. Countries with substantial oil and gas resources are placed at the bottom of the list and are
surpassed by the U.S.
b. Average GDP per capita in the world is below $10,000.
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c. The United States ranks sixth in the world in terms of per capita GDP.
d. The average per capita GDP in countries like China, India, Indonesia, and Kenya are far
above the average per capita GDP in the U.S. and Japan.
e. The average per capita GDP in countries like Burundi, Zimbabwe, and Liberia are almost
similar to the average per capita GDP in China and Japan.
c; Moderate
12. The inflation rate measures the annual rate of increase of the:
a. consumer price index.
b. Gross Domestic Product.
c. nominal interest rate.
d. money supply.
e. Gross National Product.
a; Moderate
13. In the country of South Tenzia, the cost of a commodity basket in 1998 was $4,500 while its price
increased to $5,500 in 2005. Assuming 1998 to be the base year, compute the CPI for 2005.
a. 125.3
b. 120
c. 100
d. 110.11
e. 122.22
e; Easy
14. The CPI (with 2000 as the base year) for Country A was reported at 112 in 2005 and 118 in 2006.
Calculate the approximate annual inflation rate for this country.
a. 5.36
b. -5.36
c. 4.5
d. -5.13
e. 4.58
a; Moderate
15. The economic situation where the rate of inflation in an economy is negative is referred to as:
a. disinflation
b. runaway inflation
c. stagflation
d. deflation
e. hyperinflation
d; Moderate
16. Worldwide data on unemployment and inflation rates for 2009 revealed that:
a. unemployment rates in most countries across the world were below 3 percent.
b. unemployment rate in the U.S. more than doubled the normal unemployment rate.
c. inflation rates in most countries across the world exceeded 6 percent.
d. India experienced the lowest rate of inflation in the world during this year.
e. Indonesia was the only country which experienced deflation during this year.
b; Moderate
17. When a government issues Treasury bills or bonds or borrows money from the public, to finance
a budget deficit, a(n) _____ is created.
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a. international debt
b. international credit liability
c. national debt
d. national reserve
e. national asset recovery fund
c; Easy
18. Which of the following facts were revealed by the data on budget balance and national debt both
as a percentage of GDP for the year 2009?
a. Japan’s national debt was an astounding 172 percent of GDP during this year.
b. Japan and South Korea were the only countries which experienced budget surplus during this
year.
c. Budget surplus in the U.S. and Japan exceeded 10 percent during this year.
d. Budget deficits for most countries were below 5 percent of the GDP.
e. National debt as a percent of GDP in the U.S. reached 50 percent in this year.
a; Moderate
19. According to the online national debt clock, gross national debt of the U.S. was:
a. less than $1 trillion.
b. more than $15 trillion.
c. more than $12 trillion.
d. less than $5 trillion.
e. around $4 trillion.
c; Moderate
20. The Social Security “trust fund,” in the U.S. is currently being used for:
a. financing unemployment assistance programs.
b. financing old age pension schemes.
c. supporting the baby boom generations.
d. purchasing government Treasury bonds.
e. improving public health and sanitation.
d; Easy
21. The _____ measures the number of units of one currency that exchanges for one unit of another
currency.
a. consumer price index
b. trade balance
c. inflation rate
d. real interest rate
e. exchange rate
e; Easy
22. Consider a country Atlantica, using dollars ($) as its currency. If this country sets a price for gold,
and then issues currency such that the amount in circulation is equivalent to the value of gold held
in reserve, it is said to be following:
a. a gold exchange standard.
b. a gold standard.
c. a reserve currency standard.
d. a crawling peg standard.
e. a currency board standard.
b; Easy
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23. The ______ was created to monitor and assist countries with international payments problems.
a. World Bank
b. International Monetary Fund (IMF)
c. International Bank for Reconstruction and Development.
d. World Trade Organization
e. Bretton Woods system
b; Easy
24. Which of the following currency regimes is followed by the United States?
a. Managed float
b. Crawling peg
c. Currency board
d. Floating
e. Fixed to composite
d; Easy
25. China is listed as maintaining a _____ exchange rate by the IMF. The Chinese currency is
essentially fixed but the Chinese central bank allows its currency to appreciate slowly with
respect to the U.S. dollar.
a. crawling peg
b. currency board
c. managed float
d. fixed to composite
e. single currency standard
a; Easy
26. Estonia maintains a fixed exchange rate by essentially eliminating the central bank in favor of a
_____ that is mandated by law to follow procedures that will automatically keep its currency
fixed in value.
a. private stock exchange
b. reserve board
c. international board
d. Cabinet council
e. currency board
e; Easy
27. Which of the following is a composite currency issued by the IMF used for central bank
transactions?
a. The U.S. dollar
b. Structural Adjustment Aid
c. Special Drawing Rights
d. The euro
e. Reserve ratio
c; Easy
28. The international investment position of a country:
a. corresponds to the total national debt of a nation.
b. corresponds to the sum of a country’s trade deficits and surpluses over time.
c. equals the total value of foreign assets held by domestic residents.
d. equals the total value of domestic assets held by foreigners.
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e. corresponds to the sum of the nation’s government budget deficits over time.
b; Easy
29. Which of the following is reflected by the data on trade balance and international investment
position as a percentage of GDP for the year 2009?
a. most of the countries across the world ran a trade deficit in 2009.
b. most of the countries across the world ran a trade surplus in 2009.
c. the U.S. registered a trade deficit of over 5 percent of GDP.
d. China recorded a surplus of over 5 percent of GDP.
e. the international debt position of the euro area was over 50 percent of GDP.
d; Moderate
30. Which of the following countries is referred to as the largest debtor nation of the world and why?
a. The U.S. because it has been running a trade deficit for more than the past thirty years.
b. Japan because it has been running a trade surplus for more than the past thirty years.
c. China because it has been running a trade surplus for more than the past ten years.
d. Estonia because it has been running a trade deficit of over 50 percent.
e. South Africa because it has been running a trade surplus over the past 10 years.
a; Moderate
31. Which of the following countries reported large international debt in 2009 but at the same time
witnessed a trade surplus?
a. Spain
b. India
c. Estonia
d. South Africa
e. The United States
c; Easy
32. The recession of 2008-2009 resulted from the bursting of the:
a. commodity market bubble.
b. stock market bubble.
c. dot-com bubble.
d. real estate bubble.
e. asset price bubble.
d; Moderate
33. A(n) _____ refers to a decline in a country’s measured real gross domestic product (GDP) over a
period usually coupled with an increasing aggregate unemployment rate.
a. economic recession
b. economic depression
c. stagflation
d. economic degradation
e. output gap
a; Easy
34. In the United States, a recession is usually defined as:
a. two successive years of zero GDP growth.
b. two successive quarters of negative real GDP growth.
c. two successive years of positive cyclical unemployment.
d. two successive quarters of insignificant GDP growth.
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e. two successive quarters of runaway inflation (over 2 percent).
b; Easy
35. According to the National Bureau of Economic Research (NBER), the recession of 2008-2009
had begun in the U.S. in:
a. April 2007.
b. April 2008.
c. January 2008.
d. December 2008.
e. December 2007.
e; Easy
36. The _____ refers to the cyclical pattern of economic expansions and contractions.
a. economic boom
b. economic depression
c. economic cycle
d. business cycle
e. trade cycle
d; Moderate
37. The largest annual decrease in the U.S. GDP during the Great Depression was ______while the
highest unemployment rate was 24.9 percent.
a. −4.58 percent
b. −12.5 percent
c. −13.1 percent
d. −22.9 percent
e. −20.4 percent
c; Easy
38. Of the thirty-four U.S. recessions since 1854 classified by the National Bureau of Economic
Research (NBER), the longest was _____ months in the 1870s, whereas the average length was
______ months.
a. sixty-five; seventeen
b. forty-five; fifteen
c. thirty-eight; fifteen
d. fifty-two; seventeen
e. fifty-eight; seventeen
a; Easy
39. Of all the U.S. expansions since 1854 classified by the National Bureau of Economic Research
(NBER), the longest was ______ whereas the average length was thirty-eight months.
a. 65 months in 1980s
b. 96 months in 1970s
c. 120 months in the 1980s
d. 120 months in the 1990s
e. 96 months in 1980s
d; Easy
40. The _____ is commonly used to refer to the economic crisis (or crises) that persisted for the entire
decade of the 1930s, only truly coming to an end at the start of World War II.
a. the stock market contraction
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b. depression of 1980s
c. Great Depression
d. economic recession of 2008-2009
e. capital flight of 1960s
c; Easy
41. Which of the following rules are established by a country under a gold standard?
a. A country fixes it currency value to dollars.
b. A country establishes a currency board.
c. A country fixes its currency value to a weight of gold
d. A country fixes its currency value to a composite currency.
e. A country fixes its currency value to euros.
c; Easy
42. Suppose in 1915, Mexico fixed its currency at 280pesos per ounce of gold while Canada fixed its
currency to C$25 per ounce of gold. As a result of the gold-currency convertibility in both
countries, the peso/C$ exchange rate will be:
a. 8.90pesos/C$.
b. 0.75pesos/C$.
c. 12.20 pesos/C$.
d. 11.20pesos/C$.
e. 10.02pesos/C$.
d; Moderate
43. Most countries dropped off the gold standard during the Great Depression because:
a. there was a sudden increase in the demand for dollars against gold which most central banks
failed to meet.
b. there was a fast depletion of world gold reserves.
c. gold reserves with the general public exceeded those of the national governments.
d. countries realized the advantages of establishing a currency board.
e. countries realized the importance of a floating exchange rate system.
b; Easy
44. Which of the following is true of the Bretton Woods conference of 1944?
a. It helped countries to achieve robust economic growth even amidst high rates of inflation.
b. It proposed the formation of a currency board
c. It established a floating exchange rate in the U.S. and other industrialized countries.
d. It proposed the constitution of the World Trade Organization.
e. It was formally called the United Nations Monetary and Financial Conference.
e; Moderate
45. The purpose of the international monetary fund (IMF) that was created during the Bretton Woods
conference of 1944 was:
a. to provide loans to countries to aid their reconstruction after World War II.
b. to promote growth in the developing countries.
c. to promote economic development of the countries affected by the Great Depression.
d. to monitor and maintain the stability of the gold exchange standard.
e. to promote free trade.
d; Easy
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46. _____ allow countries to prevent foreign purchases of businesses and companies or to prevent
foreign banks from lending or borrowing money.
a. Capital flight
b. Capital control
c. Currency board
d. Composite currency
e. Reserve currency standard
b; Easy
47. The _____ crisis developed in the early 1980s when national governments of Mexico, Brazil,
Venezuela, Argentina, and eventually many other nations were unable to pay the interest on their
external debt, or the money they borrowed from other countries.
a. Third World debt
b. gold reserve
c. stock market
d. euro-dollar
e. real estate
a; Easy
48. The conditionality that the IMF imposes while providing loans to countries suffering from the
international debt repayment problems is called:
a. international credit control.
b. industrial reconstruction loan.
c. the structural adjustment program.
d. the Washington consensus.
e. capital control.
c; Easy
49. The _____ was proposed during the Bretton Woods conference to promote the reduction of tariff
barriers and to coordinate domestic policies so as to encourage a freer flow of goods between
countries.
a. World Trade Organization (WTO)
b. International Trade Organization (ITO)
c. World Bank
d. International monetary fund (IMF)
e. International Bank for Reconstruction and Development (IBRD)
b; Easy
50. The IBRD is one component of a larger organization called the _____.
a. Federal Reserve
b. ITO
c. IMF
d. World Bank
e. Washington Consensus
d; Easy
Short Answer Questions
1. Why is international economics growing in importance as a field of study?
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International economics is growing in importance as a field of study because of the rapid
integration of international economic markets. Increasingly, businesses, consumers, and
governments realize that their lives are affected not only by what goes on in their own town, state,
or country but also by what is happening around the world.
Moderate
2. What are the objectives of an international trade course?
The objective of an international trade course is to understand the effects of international trade on
individuals and businesses and the effects of changes in trade policies and other economic
conditions. The course develops arguments that support a free trade policy as well as arguments
that support various types of protectionist policies.
Easy
3. Why is GDP per capita used to compare the average economic well-being of different countries
across the world?
The value of the total consumption of goods and services by individuals of a nation gives an
indication of the average well-being of individuals in a country. Countries reporting a
comparatively higher per capita GDP are the ones that experience better living standards.
Easy
4. What does unemployment rate measure?
The unemployment rate measures the percentage of the working population in a country who
would like to be working but are currently unemployed.
Easy
5. Name any two countries which have reported deflation in 2009?
Japan and Estonia, are the two countries that reported deflation this year.
Moderate
6. Describe a “managed float” system of exchange rate.
In a managed float system, the countries’ central banks sometimes allow the currency to float
freely, but at other times will nudge the exchange rate in one direction or another.
Moderate
7. What is a business cycle?
The business cycle refers to the cyclical pattern of economic expansions and contractions.
Business cycles have been a persistent occurrence in all modern economies.
Easy
8. Why do you think structural adjustment programs are attached with the loans provided by the
IMF to countries suffering from external debt repayment problems?
Since the IMF wanted to get its money back (meaning the money contributed by the member
nations), the structural adjustment loans came with IMF conditionality that the countries must
promise to fulfill to receive a loan from the IMF.
Moderate
Essay
1. Briefly discuss the economic recession of 2008-2009 in the U.S.
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In 2007, GDP growth in the U.S. was a respectable 2 to 3 percent and unemployment was below
5 percent indicating a healthy economy. By the first quarter in 2008, GDP became negative
although unemployment remained low. Growth rebounded to positive territory in the second
quarter of 2008 while at the same time unemployment began to rise rapidly.
By late 2008, recession set in as the country experienced three successive quarters of significant
GDP decline. Between the second quarter of 2008 and the end of the first quarter in 2009 GDP
declined significantly, while the unemployment rate began to skyrocket. By the middle of 2009,
the decline of GDP subsided and reversed to positive territory by the third quarter. However, the
unemployment rate continued to rise, though at a slower pace.
The recession of 2008-2009 is said to be similar to the Great Depression of the 1930s.
Easy
2. Describe the different types of exchange rate regimes followed across the world
Currencies including the U.S. dollar, the Japanese yen, the Brazilian real, the South Korean won,
and the South African rand are independently floating, meaning that their exchange values are
determined in the private market on the basis of supply and demand. Because supply and demand
for currencies fluctuate over time, so do the exchange values, which is why the system is called
floating.
India and Indonesia are classified as “managed floating,” implying that the countries’ central
banks will sometimes allow the currency to float freely, but at other times will nudge the
exchange rate in one direction or another.
China is listed and maintaining a crawling peg, which means that the currency is essentially fixed
except that the Chinese central bank is allowing its currency to appreciate slowly with respect to
the U.S. dollar. In other words, the fixed rate itself is gradually but unpredictably adjusted.
Estonia is listed as having a currency board. This is a method of maintaining a fixed exchange
rate by essentially eliminating the central bank in favor of a currency board that is mandated by
law to follow procedures that will automatically keep its currency fixed in value.
Russia is listed as fixing to a composite currency. This means that instead of fixing to one other
currency, such as the U.S. dollar or the euro, Russia fixes to a basket of currencies, also called a
composite currency.
Sixteen countries in the European Union are currently members of the euro area. Within this area,
the countries have retired their own national currencies in favor of using a single currency, the
euro. When all countries circulate the same currency, it is the ultimate in fixity, meaning they
have fixed exchange rates among themselves because there is no need to exchange. However,
with respect to other external currencies, like the U.S. dollar or the Japanese yen, the euro is
allowed to float freely.
Moderate
3. Describe the international investment position of the U.S. as a percentage of GDP in 2009.
Compare it with some of the other nations across the world.
Data on the trade balance and internal debt showed that the United States ran a trade deficit of 3.1
percent of GDP in 2009, down markedly from about 6 percent a few years prior. The United
States had run a trade deficit for more than the past thirty years and as a result has amassed a debt
to the rest of the world larger than any other country, totaling about $3.4 trillion or almost 25
percent of U.S. GDP. As such, the U.S. is referred to as the largest debtor nation in the world.
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During the past twenty-five or more years Japan ran persistent trade surpluses. As a result, it has
amassed over $2.4 trillion of credits to the rest of the world or just over 50 percent of its GDP.
Thus it is by far the largest creditor country in the world.
Like the United States, many other countries have been running persistent deficits over time and
have amassed large international debts. The most sizeable are for Spain and Estonia, both over 80
percent of their GDPs. Spain continued to run a trade deficit in 2009 adding to its international
debt whereas Estonia ran a trade surplus and entered the process of repaying its debt. South Korea
and Indonesia are following a similar path as Estonia.
Easy
4. Compare the unemployment and inflation rates for the year 2009, in the U.S. with the major
world economies.
The unemployment rates and inflation rates in most countries are unusual in the reported period
because of the economic crisis that hit the world in 2008. Unemployment rates in most countries
in 2009 were much higher than the normal unemployment rate of 3 to 5 percent, while inflation
rates were lower than the normal rates of 3 to 6 percent. In the United States, the unemployment
rate more than doubled, but in the European Union, unemployment was at a higher rate than the
United States before the crisis hit, and so it has not risen quite as much.
Several standouts in unemployment are Spain and South Africa. These reported exceedingly high
rates coming very close to the United States unemployment rate of 25 percent reached during the
Great Depression in 1933.
India’s inflation rate was the highest of the group listed but was not much different from inflation
in India the year before of 10.4 percent. Russia’s inflation had fallen in 2009 from its rate last
year of 13.2 percent. Japan and Estonia were the only two countries in the list that reported
deflation in 2009. Japan had experienced an inflation of 1.7 percent in the previous year, whereas
Estonia’s rate had been 8 percent.
Easy
Fill in the Blanks
1. International trade is a field in economics that applies _____ models to help understand the
international economy.
microeconomic models; Easy
2. The focus of _____ is on the significance of trade imbalances, the determinants of exchange rates,
and the aggregate effects of government monetary and fiscal policies.
international finance; Easy
3. Per capita GDP in billions of U.S. dollars (based on PPP) for the year 2009, was the lowest in
_____.
Burundi; Easy
4. The _____ is a ratio that measures how much a set of goods costs this period relative to the cost
of the same set of goods in some initial year.
consumer price index (CPI); Easy
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5. When the government issues Treasury Bills and bonds to finance a budget deficit it is actually
_____ money from/to the private market.
borrowing; Easy
6. Countries like _____ and _____ have witnessed deflation in 2009.
Japan and Estonia; Easy
7. Under a _____ system of exchange rate a country sets a price for gold and then issues currency
such that the amount in circulation is equivalent to the value of gold held in reserve.
gold standard; Moderate
8. The data on international investment positions as percentage of GDP in 2009 reveals that the
_____ is the largest debtor nation in the world.
United States; Easy
9. The bursting of the _____ bubble led to a dramatic drop in real estate prices in the U.S. in 2007
and 2008.
real estate bubble; Easy
10. According to the National Bureau of Economic Research (NBER) the longest recession in the
U.S. lasted for 65 months from _____ to _____.
1873 to 1879; Moderate
11. The _____ was a component of the World Bank created during the Bretton Woods agreement to
provide loans to countries to aid their reconstruction after World War II and to promote economic
development.
International Bank for Reconstruction and Development (IBRD); Easy
12. ______ allow countries to prevent foreign purchases of businesses and companies or to prevent
foreign banks from lending or borrowing money.
Capital controls; Easy
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