AE 19 (Financial Management)

1. Which of the following would not be included in the calculation of the gross national product (GNP)?

a. Purchase of a new home

b. An automotive worker’s wages

c. A doctor’s fee

d. Purchase of common stock

2. Under the income approach, gross national product (GNP) is measured as

a. Depreciation charges and indirect business taxes + Wages + Rents + Interest + Profits - Net income earned abroad.

b. Wages + Rents + Interests + Profits

c. Depreciation charges and indirect business taxes + Wages + Rents – Interest + Profits

d. Wages + Rents + Interest – Profits + Net Income earned abroad.

3. Assume the real gross national product (GNP), measured in Year 1 pesos raised from ₱3,000 billion in Year 1 to ₱4,500 billion in Year 10.
Assume also that the price index rose from 100 to 200 during the same period. The GNP for Year 1 expressed in terms of Year 10 prices is

a. ₱1,500 billion.

b. ₱3,000 billion.

c. ₱4,500 billion.

d. ₱6,000 billion.

4. When the addition to capital goods in an economy exceeds the capital consumption allowance, the economy has experienced

a. negative net investment

b. equilibrium investment

c. positive gross investment

d. positive net investment

5. In the national income terms, aggregate demand is the

a. demand for money by the community in a period of full employment.

b. total expenditure on capital goods by entrepreneurs during a period of full employment.

c. demand that is needed if a country’s economy is to operate at optimum level and the level of investment is to be raised.

d. total expenditure on consumer goods and investment, including government and foreign expenditure during a given period.

6. For a given level of tax collections, prices and interest rates, a decrease in governmental purchases will result in a (n)

a. increase in aggregate demand

b. increase in aggregate supply

c. decrease in aggregate demand

d. decrease in aggregate supply

7. Which of the following may provide a leading indicator of a future increase in gross national product (GNP)?
 a. A reduction in the money supply

b. A decrease in issuance of building permits

c. An increase in the timeliness of delivery by vendors

d. An increase in the average hours worked per week of production workers

8. The trough of business cycle is generally characterized by

a. shortages of essential raw materials and rising costs.

b. increasing purchasing power and increasing capital investments.

c. rising costs and unwillingness to risk new investments.

d. unused productive capacity and an unwillingness to risk new investments.

9. During the recessionary phase of a business cycle,

a. the purchasing power of money is likely to decline rapidly.

b. the natural rate of unemployment will increase dramatically.

c. potential national income will exceed actual national income.

d. actual national income will exceed potential national income.

10. The Keynesian analysis of monetary and fiscal policy

a. assumes the economy is stable and self-regulating.

b. places primary emphasis on monetary policy.

c. assumes that velocity is stable.

d. focuses on aggregate expenditures.

11. Which of the following instruments of monetary policy is the most important means by which the money supply is controlled?

a. Changing the reserve ratio

b. Open-market operations

c. Manipulation of government spending

d. Changing the discount rate

12. All of the following are functions of the Central Bank except

a. acting as lender of last resort to the business community.

b. accepting deposits of, and making loans to commercial banks.

c. supplying the economy with paper money in the form of Central Bank notes.

d. providing for the collection of checks.

13. In order for the BSP to increase the money supply, the appropriate policy would be to

a. encourage banks to increase their holdings of excess reserves.

b. increase the discount rate.

c. engage in open-market purchases of governments securities.

 d. raise margin requirements on stock market purchases.

14. A securities dealer purchased a P10,000 government, bond from Commercial Bank, which had purchased the bond from the Central Bank. The
dealer paid for the bond by a check drawn on its bank. Therefore, the money supply has

a. not been affected.

b. decreased by P10,000.

c. increased by P10,000.

d. decreased by P10,000 multiplied by the reciprocal of the required reserve ratio.

15. A banking system with a reserve ratio of 20% and a change in reserves of P1,000,000 can increase its total demand deposits by

a. P200,000

b. P5,000,000

c. P1,000,000

d. P800,000

16. The discount rate of the Central Bank is

a. the specified percentage of a commercial bank’s deposit liabilities that must be deposited in the central bank.

b. the rate that central bank charges for loans granted to commercial banks.

c. the rate that commercial banks charge for loans granted to the public.

d. the ratio of excess reserves to legal reserves that are deposited in the central bank.

17. When economists are concerned about the liquidity preference function, they are interested in

a. the relationship of the demand for money and the rate of interest.

b. the proportion of liquid (cash) reserves maintained by commercial banks.

c. the preference for a currency backed by gold

d. a bank’s desire for accounts receivable as collateral.

18. If a government were to use only fiscal policy to stimulate the economy from a recession, it would

a. raise consumer taxes and increase government spending.

b. lower business taxes and government spending.

c. increase the money supply and increase government spending.

d. lower consumer taxes and increase government spending.

19. The narrow definition of money supply (M₁) consists only of

a. current and demand deposits.

b. currency, demand deposits, other checkable deposits and travelers’ checks.

c. currency, demand deposits and small time deposits.

d. currency, demand deposits, small time deposits and Money Market Mutual Fund balances.

20. The money supply in a nation’s economy will decrease following

 a. open-market purchases by the nation’s central bank.

b. a decrease in the discount rate.

c. an increase in the reserve ratio.

d. a decrease in the margin requirement.

21. The movement of migrant workers from a poor country to a rich country with a low unemployment rate will have which of the following effects
on the receiving country?

a. GNP will increase.

b. Average wage levels will increase.

c. Business incomes will decrease.

d. The labor force will decrease.

22. Unemployment that is caused by a mismatch between the composition of the labor force (in terms of skills, occupation, industries or geographic
location) and the makeup of the demand for labor is called

a. real wage unemployment.

b. deficient-demand unemployment.

c. frictional unemployment.

d. structural unemployment.

23. What is the rate of inflation from one year to the next if the consumer price index was 110 in one year and 118 in the next year?

a. 7.0%

b. 7.3%

c. 8.0%

d. 18.0%

24. A period of rising inflation

a. increases the price level, which benefits those who are entitled to receive specific amounts of money.

b. enhances the positive relationship between the price level and the purchasing power of money.

c. will not be affected by contracts that include the indexing of payments.

d. increases the price level, which is negatively related to the purchasing power of money.

25. Two examples of indirect taxes are

a. taxes on business, rental property and personal income taxes.

b. sales taxes and social security taxes paid by employees.

c. sales and excise taxes.

d. social security taxes paid by employees and personal income taxes.

26. Government borrowing to finance large deficits increases the demand for lendable funds and

a. increases the supply of lendable funds.

b. exerts downward pressure on interest rates.

 c. has no impact on interest rates.

d. puts upward pressure on interest rates.

27. Which of the following is a typical macroeconomic topic?

a. The pricing decisions of a company

b. The consumption and saving behavior of households

c. The rate of inflation

d. The growth of the computer industry

28. What is the primary goal of an economic system?

a. The organization of the production, distribution, exchange and consumption of goods and services.

b. To maximize profits for producers.

c. To determine the flow and distribution of money.

d. To produce, distribute and exchange goods and services in the fastest possible way.

29. What causes the production possibilities curve to shift outward?

a. Reopening computer plants

b. Using machinery for making computers instead of making cars

c. Improving manufacturing efficiency for computers

d. Rehiring workers in the computer or car industry

30. Which of the following is included in the circular flow of the economy?

a. Firms sell factor services to households.

b. Households sell outputs to firms.

c. Households buy factor services from firms.

d. Households sell factor services to firms.

31. Which of the following is required for the mutual benefit of trade between two countries?

a. Decreasing marginal returns in production

b. Absolute advantage in the production of goods and services

c. Each country being able to produce more of one product than the other country

d. Comparative advantage in the production of goods and services

32. If nominal GNP grew by 16 percent and real GNP grew by 5 percent in the same year, inflation would be

a. -11 percent

b. 15 percent

c. 11 percent

d. 8 percent
33. The Consumer Price Index (CPI) measures which of the following?

a. The economy’s price level

b. The gross national product deflator

c. Changes in the real gross national product

d. Weighted prices of a selection of consumer goods and services

34. A tariff on foreign cars imported into the Philippines will

a. benefit consumers.

b. Benefits domestic producers.

c. benefit both consumers and domestic producers.

d. lead to a higher quantity of domestic and imported cars.

35. Which of the following transactions would represent an addition to a nation’s current gross national product?

a. A Philippine defense contractor manufactures a satellite for the government.

b. A corporation sells trucks from last year’s inventory.

c. A retailer buys imported clothes.

d. A father sells his computer to his son.

36. Which of the following does not cause a shift in aggregate demand?

a. Consumption

b. Imports

c. Prices

d. Investment

37. A decrease in the labor force participation rate will

a. increase government spending

b. decrease government spending.

c. have no impact on the rate of unemployment.

d. make it easier to reduce the rate of unemployment.

38. The aggregate demand curve is

a. the (horizontal) summation of factor demand for all firms.

b. the (horizontal) summation of all households’ demand curves.

c. not found by adding product demand curves.

d. the aggregate of demand curves for intermediate goods and services.

39. Assume that imports increased and at the same time, new technology has increased labor productivity. What will certainly result?

a. The price level goes up.

b. The price level goes down.

 c. The price level doesn’t change.

d. Real GNP decreases.

40. What causes the largest increase in aggregate demand?

a. A P1,000 increase in government expenditures

b. A P1,000 increase in taxes

c. A P1,000 decrease in taxes

d. A P1,000 increase in government expenditures, together with a P1,000 decrease in taxes.

41. The economy’s potential output equals P3,000,000. If current equilibrium output equals P2,500,000 and the marginal propensity to consume
equals 0.5, what would a Keynesian economist be expected to recommend?

a. Increase government spending by P250,000.

b. Increase government spending by P1,000,000.

c. Increase government spending by P500,000.

d. Decrease taxes by P250,000.

42. Which of the following groups will not be hurt by inflation?

a. Individuals on fixed incomes

b. Borrowers at fixed incomes

c. Individuals with savings earning fixed interest rates

d. Retail store owners

43. If the excess reserves in the banking system are P1,000 and the reserve requirement is 25 percent, what is the maximum expansion of the money
supply?

a. P250

b. P2,500

c. P5,000

d. P4,000

44. If people decide to hold more money as currency (i.e. cash), banks will be

a. Less able to expand credit.

b. More able to expand credit.

c. More able to decrease aggregate supply.

d. Less able to decrease aggregate supply.

45. The central Bank’s monetary policy supports fiscal policy when

a. the money supply is increased when government spending goes up.

b. the discount rate is decreases when government spending goes down.

c. the discount rate is increased when government spending goes up.

d. the money supply is decreases when government spending goes up.

46. What best explains how an economy could have high inflation and high unemployment at the same time?

a. Government increases spending but doesn’t increase taxes.

b. Supply shocks cause factor prices to increase.

c. Government increases taxes but doesn’t increase spending.

d. Inflationary expectations decline.

47. An increase in aggregate supply is caused by an increase in

a. wages rate.

b. labor productivity.

c. interest rates.

d. government spending.

48. Which of the following is most likely to improve the standard of living?

a. An increase in the number of depository institution

b. Higher taxes

c. Higher productivity of labor

d. A decrease in the money supply

49. A trade surplus must be offset elsewhere in the

a. current account balance or capital account balance only.

b. capital account balance only.

c. current account balance only.

d. merchandise balance of trade only.

50. Two countries, originally producing two commodities for domestic consumption, now specialize production according to comparative advantage
and trade with each other. What is the result?

a. Production will be more efficient in one country but less efficient in the other.

b. The two countries will become more self-sufficient.

c. Unemployment increases in at least one country.

d. Both countries will be better off.

51. Which of the following policy combinations is most likely to eliminate a recession?

Open Market Operations Taxes Government Spending

a. Buy Securities Increase Decrease

b. Buy Securities Decrease Increase

c. Sell Securities Increases Increase

d. Buy Securities Decrease Decrease

52. Facing a budget deficit, government decreases expenditures and tax revenues by the same amount. How will this affect output and interest rates?

Output Interest Rates

a. Increase Increase

b. Increase Decrease

c. Decrease Decrease

d. No change Decrease

53. Monetarist policy makers emphasize long-run growth and stability during mild recession. Which policy actions are they most likely to
recommend?

Monetary Policy Fiscal Policy

a. Sell Bonds Reduce Taxes

b. Sell Bonds Raise Taxes

c. Buy Bonds No Change

d. No change Raise Taxes

54. If the government simultaneously employs expansionary monetary and fiscal policies, what will be the likely effect on interest rates and
unemployment?

Interest Rates Unemployment

a. Decrease Decrease

b. Might either increase or decrease Decrease

c. Might either increase or decrease Increase

d. Increase Might either increase or decrease

55. Which of the following is designed to restrict trade?

a. Global corporations

b. GATT

c. Important quotas

d. European Union

56. Which of the following statements concerning pure monopolies is correct?

a. The demand curve of a monopolist is perfectly elastic.

b. The price at which a monopolist maximizes its profit is where price equals both marginal cost and marginal revenue.

c. A monopolist’s marginal revenue curve lies below its demand curve.

d. For a monopolist, there is a unique relationship between the price and the quantity supplied.

57. Compared with firms in a perfectly competitive market, a monopolist tends to

a. produce substantially less but charge a higher price.

b. produce substantially more and charge a higher price.

 c. produce the same output and charge a higher price.

d. produce substantially less and charge a lower price.

58. Natural monopoly conditions, which often lead to government regulation, exist when

a. consumer demand for a product is perfectly elastic.

b. marginal costs are rising.

c. consumer demand is inversely related to the business cycle.

d. total average costs are declining.

59. Economic markets that are characterized by monopolistic competition have all of the following characteristics except

a. one seller of the product

b. economies or diseconomies of scale

c. advertising

d. heterogeneous products

60. A market with many independent firms, low barriers to entry, and product differentiation is best classified as

a. a monopoly.

b. monopolistic competition.

c. an oligopoly.

d. pure competition.

61. The distinguishing characteristics of oligopolistic market is

a. A single seller of a homogeneous product with no close substitute.

b. A single seller of a heterogeneous product with no close substitute.

c. Lack of entry and exit barriers in the industry.

d. Mutual interdependence of firm pricing and output

62. Patents are granted in order to encourage firms to invest in the research and development of new products. Patents are an example of a(n)

a. vertical integration.

b. market concentration.

c. entry barriers.

d. collusion.

63. The large capital outlay necessary for the equipment is an example of a(n)

a. entry barrier.

b. minimum efficient scale.

c. created barrier.

d. production possibility boundary.

64. In the short run, the monopolist

a. breaks even.

b. incurs a loss.

c. makes a profit.

d. all of the above.

65. If the monopolist incurs losses in the short run, then in the long run

a. he will go out of business.

b. he will stay in the business.

c. he will break even.

d. any of the above is possible.

66. When the monopolist is in

a. short-run equilibrium, he/she will also be in long-run equilibrium.

b. long-run equilibrium, he/she will also be in short-run equilibrium.

c. long-run equilibrium, he/she may or may not be in short-run equilibrium.

d. None of the given choices.

67. In monopolistic competition, we have

a. few firms selling differentiated products.

b. many firms selling a homogeneous product.

c. few firms selling a homogeneous product.

d. many firms selling differentiated products.

68. Which of the following most closely approximates our definition of oligopoly?

a. the cigarette industry

b. the barber shops in a city

c. the gasoline stations in a city

d. wheat farmers in the Midwest

69. In the case of price leadership by the dominant firm, all the firms in the purely oligopolistic industry will produce their best level output.

a. Always

b. Never

c. Sometimes

d. Often

70. If an oligopolist incurs losses in the short-run, the in the long-run

a. he will go out of business.

b. he will stay in business.

 c. he will break even.

d. any of the above is possible.

71. Inflation has

a. increased corporations’ reliance on debt for capital expansion needs.

b. created a larger asset values on the firm’s historical statement of financial position.

c. made it cheaper in terms of interest costs for the firms to borrow money.

d. All of the given choices.

72. A capital market does not include which of the following securities?

a. Common stock

b. Commercial paper

c. Government bonds

d. Preferred stock

73. Maximization of shareholder’s wealth is a concept in which

a. increased earnings is of primary importance.

b. profits are maximized on a quarterly basis.

c. virtually all earnings are paid as dividends to common stockholders.

d. optimally increasing the long-term value of the firm is emphasized.

74. Which of the following is not a true statement about the goal of maximizing shareholder’s wealth?

a. It takes into account the timing of cash flows.

b. It is a short-run point of view which takes risk into account.

c. It considers risk as a factor.

d. None of the above.

75. Which of the following is a result of a high inflation?

a. Phantom profits

b. Under-valued assets

c. Lower profitability

d. All of the given choices

76. A corporate restructuring can result in

a. changes in the capital structure.

b. selling of low-profit margin divisions

c. reductions in the work force.

d. All of the given choices.

77. Insider trading occurs when

a. someone has information not available to the public which they use to profit from trading in stocks.

b. corporate officers buy stock in their company

c. lawyers, investment bankers, and others can buy common stock in companies represented by their firms.

d. any stock transactions occur in violation of the restrictions in monopolies.

78. Future financial managers will need to understand

a. international cash flows

b. computerized funds transfers.

c. international currency hedging strategies.

d. All of the given choices.

79. One of the major consequences of international trade between nations is

a. higher prices for consumers.

b. a decreased variety of consumer products.

c. the possibility for total world output to increase.

d. reduced competition for business.

80. Which one of the following statements concerning international trade and protection is true?

a. Protection is necessary to keep money in the country.

b. When two nations trade, one must gain while the other must lose.

c. A country cannot compete with one another whose labor costs are lower.

d. A country’s imports raise its living standards.

81. If there were free trade between the two countries, which one of the following statements would be true?

a. Only the US will gain from free trade.

b. The US would specialize in the production of both chips and soybeans.

c. The US will export chips to Philippines.

d. Philippines will specialize in the production of chips.

82. In trade between Philippines and the US,

a. Philippines has an absolute advantage in producing soybeans.

b. US has a comparative advantage in producing soybeans.

c. Philippines has a comparative advantage in producing soybeans.

d. US has a comparative advantage in producing chips.

83. Which of the following is a tariff?

a. Licensing requirements

b. Consumption taxes on imported goods

 c. Unreasonable standards pertaining to product quality and safety

d. Domestic content rule

84. Which of the following is a direct effect of imposing a protective tariff on a imported product?

a. Lower domestic prices on the imported item.

b. Lower domestic consumption of the item.

c. Reduced domestic consumption of the item.

d. Higher sales revenues for foreign producers of the items.

85. One consequence of the imposition of tariffs or quotas on imported product is

a. lower prices for domestic products that compete with affected imports.

b. domestic industry opposition to protection from imports.

c. additional consumption of the affected imported products.

d. higher prices for the affected imported products.

86. Which one of the following groups would be the primary beneficiary of a tariff?

a. Domestic producers of export goods.

b. Domestic producers of goods protected by the tariff.

c. Domestic consumers of goods protected by the tariff.

d. Foreign producers of goods protected by the tariff.

87. Which of the following measures create the most restrictive barrier to exporting to a country?

a. Tariffs

b. Quotas

c. Embargoes

d. Exchange control

89. The most widely used currency in international business today is the

a. US dollar

b. Euro

c. Japanese yen

d. Swiss franc.

90. The Philippine peso has a free-floating exchange rate. When the peso has fallen considerably in relation to other currencies, the

a. trade account in the Philippine balance of payments is neither in a deficit nor in a surplus because of the floating exchange rates.

b. capital account in the Philippine balance of payments is neither in a deficit nor in a surplus because of the floating exchange rates.

c. fall in the peso value cannot be expected to have any effect on the Philippine trade balance.

d. cheaper peso helps Philippines exporters of domestically produced goods.

91. An overhauled foreign currency exchange rate

a. Represents a tax on exports and a subsidy to imports.

b. Represents a subsidy to exports and a tax on imports.

c. Has an effect on capital flows but no effect on trade flows.

d. Has no effect on capital flows but does affect on trade flows.

92. Exchange rates are determined by

a. each industrial country’s government.

b. the International Monetary Fund.

c. supply and demand in the foreign currency market.

d. exporters and importers of manufactures goods

93. Two countries have flexible exchange rate systems and an active trading relationship. If income <List A> in the Philippines, everything else
being equal, then the currency of the Philippines will tend to <List B> relative to the currency of the US.

List A List B

a. Rise Remain constant

b. Fall Depreciate

c. Rise Depreciate

d. Remain constant Appreciate

94. In foreign currency markets, the phrase “manage float” refers to the

a. tendency for most currency to depreciated in value.

b. discretionary buying and selling of currencies by central banks

c. necessity of maintaining a highly liquid asset, such as gold, to conduct international trade

d. fact that actual exchange rates are set by private business people in trading nations.

95. The purchasing-power parity exchange rate

a. is a fixed (pegged) exchange rate.

b. is always equal to the market exchange rate.

c. results in an undervalued currency of countries that are net importers.

d. holds constant the relative price levels in two countries when measured in a common currency.

96. If the Philippine peso declines in value relative to the currencies of many of its trading partners, the likely result is that

a. foreign currencies will depreciate against the peso.

b. the Philippine balance of payments deficit will become worse.

c. Philippine exports will tend to increase.

d. Philippine imports will tend to increase.

97. If consumers in Japan decide they would like to increase their purchases of consumer products made in the Philippines, in foreign currency
markets there will be a tendency for
 a. the supply of pesos to increase.

b. the supply of pesos to decrease.

c. the Japanese yen to appreciate relative to the Philippine peso

d. the demand for pesos to increase.

98. Debt-servicing problems of less developed countries that primarily sell raw materials to the Philippines would be eased by

a. a recession in the Philippines with declines in interest rates.

b. An expanding Philippine economy with stable money supply growth.

c. An expansion of the lending authority of the World Bank.

d. A significant increase in the level of Philippine tariffs.

99. If the Central Bank of a country raises interest rates sharply, the country’s currency will likely

a. increase in relative value.

b. remain unchanged in value.

c. decrease in relative value.

d. decrease sharply in value at first and then return to its initial value.

100. Assuming exchange rates are allowed to fluctuate freely, which one of the following factors would likely cause a nation’s currency to appreciate
on the foreign exchange market?

a. a relatively rapid rates of growth in income that stimulates imports.

b. a high rate of inflation relative to other countries.

c. a slower rate of growth in income than in other countries, which causes imports to lag behind exports.

d. domestic real interest rates that are lower than real interest rates abroad

101. The spot rate of the French franc is $0.90. If the spot rate one year from now is $0.85, the franc will have

a. appreciated by 5.56%

b. depreciated by 5.56%

c. appreciated by 5.88%

d. depreciated by 5.88%

102. A Filipino Importer of English clothing has contracted to pay an amount fixed in British pounds Three months from now. If the importer worries
that the Philippine peso may depreciate sharply against the British pound in the interim, It would be well advised to

a. buy pounds in the forward exchange market

b. sell pounds in the forward exchange market

c. buy dollars in the future market.

d. sell dollars in the future market.

103. Consider a world consisting of only two countries, Canada and Italy. Inflation in Canada in 1 year was 5%, and in Italy 10%. Which one of the
following statements about Canadian exchange rate (rounded) during the year will be true?

a. Inflation has no effect on the exchange rates.

 b. The Canadian dollar will appreciate by 5%.

c. The Canadian dollar will depreciate by 5%.

d. The Canadian dollar will depreciate by 15%.

104. If risk is purposely undertaken in the foreign currency market, the investor in foreign currency then becomes

a. a speculator.

b. an arbitrageur.

c. involved in hedging.

d. an exporter.

105. A company has a foreign-currency-denominated trade payable, due in 60 days. In order to eliminated the foreign currency exchange-rate risk
associated with the payable, the company could

a. sell foreign currency forward today.

b. wait 60 days and pay the invoice by purchasing foreign currency in the spot market at the time.

c. buy foreign currency forward today.

d. borrow foreign currency today, convert it to domestic currency on the spot market, and invest the funds in a domestic bank deposit until the
invoice payment date.

106. In relation to the balance trade, all international transactions involving the purchase or sale of physical products between domestic and foreign
countries are reflected in

a. the balance of the capital account.

b. official reserves held by the central banks.

c. the official financing account.

d. the trade balance in the current account.

107. When analyzing a country’s balance of payments accounts, the

a. current account refers only to merchandise export and imports.

b. current account and trade balance are the same.

c. capital account refers to the transactions related to the international movement of financial capital.

d. country will be in financial jeopardy unless each component in the balance of payments accounts balances at the end of the year.

108. If a country has a free floating exchange rate system and is experiencing an appreciation in the external value of its currency, it has

a. a current account deficit and a capital account surplus.

b. a current account surplus and a capital account deficit.

c. shrinking official reserves.

d. no balance of payments surplus or deficits after short-run exchange rate adjustments are complete.

109. The dominant reason countries devalue their currencies is to

a. improve the balance of payments.

b. discourage exports without having to impose controls.

 c. curb inflation by increasing imports.

d. slow what is regarded as too rapid an accumulation of international reserves.

110. In the modern world economy, balance-of-payments deficits and surpluses can be eliminated

a. through the market mechanism of flexible exchange rates

b. if all nations adopts tight monetary policies.

c. only if trade between nations is curtailed.

d. when the opportunity costs of production are made the same in all countries.

111. The World Trade Organization

a. introduced fixed exchange rates among the United States, Canada, and members of the European Union.

b. created the International Monetary Fund.

c. encourages reductions in trade barriers between countries.

d. introduced exchange rates that adjust in response to changes in trade deficits and surpluses.