Exercises

Exercises

1.Single-choice questions

(1)A high home inflation rate relative to other countries would________the home country’s current account balance, other things equal.A high growth in the home income level relative to other countries would________the home countries current account balance, other things equal.

a.increase; increase     b.increase; decrease

c.decrease; decrease    d.decrease; increase

(2)An increase in the current account deficit will place________pressure on the home currency value, other things equal.

a.upward      b.downward    c.no    d.upward or downward

(3)The “J-curve” effect describes________.

a.the continuous long-term inverse relationship between a country’s current account balance and the country’s growth in gross national product

b.the short run tendency for a country’s balance of trade to deteriorate even while its currency is depreciating

c.the tendency for exporters to initially reduce the price of goods when their own currency appreciates

d.the reaction of a country’s currency to initially depreciate after the country’s inflation rate declines

2.True/False questions

(1)BOP statement records the economic transactions that take place between residents and non-residents of a country.

(2)When |ex+em|>1, to depreciate home currency is favorable to the exportation of home country.

(3)BOP statement is divided into two parts, they are export and import balance.

3.Essay questions

(1)Use elasticity’s approach and absorption approach to deal with Chinese BOP disequilibrium.

(2)What are the two effects in play once a currency is devalued?

(3)What’s the central message of the elasticity approach?

(4)Please explain the slow responsiveness of export and import volumes in the short run and why the response is far greater in the longer run.

(5)What’s the fundamental basis of the monetary approach to the balance of payments?

(6)What are the assumptions of the monetary approach to the balance of payments?