Question

MCQ questions:

21. According to the basic absorption approach, a reduction in the value of the domestic currency

(a) Will improve the trade balance through a decrease in income and output if the economy is above full employment.

(b) Will improve the trade balance through an increase in income and output if the economy is above full employment.

(c) May improve the trade balance through an increase in direct absorption.

(d) May improve the trade balance through a reduction in direct absorption.

22. A reduction in the value of the domestic currency

(a) Is more effective at improving the trade balance once the terms of trade effect is considered.

(b) Is less effective at improving the trade balance once the terms of trade effect is considered.

(c) May lead to an increase in savings and hence a deterioration in the trade balance.

(d) May lead to an increase in absorption and hence an improvement in the trade balance.

23. If Q_T<C_T, we can say that:

(a) A trade deficit exists.

(b) A trade surplus exists.

(c) Domestic inflation is present.

(d) None of the above.

24. Under the Australian model, changes to the level of government spending should be the policy weapon used

(a)For the objective which has the flattest balance schedule

(b)For the objective which has the steepest balance schedule

(c)To achieve internal balance

(d)To achieve external balance

25. A reduction in the value of the domestic currency

(a)Is more effective at improving the trade balance once the terms of trade effect is considered.

(b)Is less effective at improving the trade balance once the terms of trade effect is considered.

(c)May lead to an increase in savings and hence a deterioration in the trade balance.

(d)May lead to an increase in absorption and hence an improvement in the trade balance.