1.Assume that the US economy expands. Assume also that the US Federal Reserve Bank (the central bank of the USA), worried by rising inflation, raises interest rates. What will be the consequences?

(a)There will be an outflow of finance from the USA. .................... True / False / Uncertain

(b)The US dollar will appreciate. ..................................................... True / False / Uncertain

(c)This will lead to a fall in US exports. ........................................... True / False / Uncertain

(d)As a result of the action of the Federal Reserve Bank, US national income will fall below what it would otherwise have been ............................................... True / False / Uncertain

(e)There will also be a fall in US imports. ......................................... True / False / Uncertain

(f)The current account of the USA's trading partners will improve.. True / False / Uncertain

(g)Interest rates in other countries will fall. ....................................... True / False / Uncertain

(h)Investment in other countries will rise. ......................................... True / False / Uncertain

(i)Other countries' national incomes rise. ......................................... True / False / Uncertain

2 Which one of the following would appear as a debit item in the UK balance of payments?

A.A Japanese pension fund buys shares in a British oil company.

B.Foreign tourists spend money in London.

C.Honda invests in a new factory in the UK.

D.A British wine merchant purchases wine from Chile.

E.American tourists fly BritishAirways.

3 In reality the balance of payments may not balance due to

A.The balance of payments always balances.

B.exports not equalling imports.

C.net errors and omissions.

D.net trading by the Bank of England.

4 Any transaction that brings in foreign exchange for a country is a

A.debit item in that country's balance of payments.

B.credit item in that country's balance of trade.

C.credit item in that country's balance of payments.

D.debit item in that country's balance of trade.

5 Which of the following would be a credit item in the UK balance of payments?

A.A UK firm hires a non-UK citizen.

B.The UK government lends money to a developing country.

C.A UK citizen travels to the USA for a two-week holiday.

D.A UK company sells computer software to a company in Spain.

6 The following table summarises part of a country's balance of payments account:

Credits (Em) Debits (Em) Trade in goods and services 1000 1200 Income flows and current transfers 400 100 Capital transfers 100 50\fCredits (Em) Debits (Em) Trade in goods and services 1000 1200 Income flows and current transfers 400 100 Capital transfers 100 50