5 Multiple choice questions.

1. If Japan trades in Yen with the US, and Japan has current account surplus, which monetary policy does the central Bank of Japan carry out? A Raising interest rates B Lowering interest rates C Cutting taxes and raising government spending D Raising taxes and reducing government expenditure 2. How does current account deficit adjust itself in floating exchange rate? A currency appreciates and central bank intervenes to buy foreign currencies B currency depreciates and in this way the exports of the countries become competitive C currency depreciates and the central bank intervenes to reduce the money supply causing deflation D currency depreciates and in this way its imports increase E None of them is true 3. Why is current account surplus always accompanied by capital account deficit? A When a country has current account surplus, capital flows out of it in the form of lending to and investment in other countries' financial markets B When a country has current account surplus, other countries invest in that country, because its economy is doing well C When a country has current account surplus, that country starts selling securities to other countries D All of them 4. Why can a country with a fixed exchange rate not pursue a policy of monetary expansion if there is no capital control? A when interest rates are lowered, capital will flow out of the country causing the currency to depreciate and central bank will have to intervene, losing its foreign exchange reserves B when interest rates are lowered, capital will flow out of the country causing the currency to appreciate and central bank will have to intervene, selling its own currency C when interest rates are lowered, capital will flow out of the country causing the currency to appreciate and exports will become expensive D when interest rates are lowered, inflation will occur and currency will lose its value 5. What is the relationship between inflation and unemployment? A Inflation causes unemployment to rise B Inflation causes unemployment to fall below its natural rate in the short run C Inflation causes unemployment to rise hugely D Inflation causes unemployment to fall on a long-term basis E Inflation and unemployment are always in inverse relationship