Question 11 What is the best explanation for why China and I

Question 11

What is the best explanation for why China and India have received so much international interest and foreign investment?

Select one:

a. Their geographic location

b. Their control over natural resources

c. Their large populations

d. Government incentives provided to foreign firms

Question 12

The biggest disadvantage of a fixed exchange rate is the

Select one:

a. increased probability of a trade deficit.

b. tradeoff between supporting the exchange rate and adjusting the trade balance.

c. increased probability of high inflation.

d. tradeoff between supporting the exchange rate and maintaining economic growth.

e. tradeoff between supporting the exchange rate and maintaining a balanced budget.

Question 13

An austerity policy is

Select one:

a. an increase in the money supply.

b. an expenditure reduction and expenditure switching policy.

c. an expansionary fiscal policy accompanied by decreases in taxes, increases in expenditures, or both.

d. an exchange rate switching policy from a fixed to a flexible exchange rate system.

e. None of the choices.

Question 14

The reform movements that began in many Latin American economies in the late 1980s favored

Select one:

a. competitive devaluations.

b. a stronger role for markets and more openness.

c. imports substitution policies.

d. stronger military budgets.

Question 15

When a country borrows from the IMF

Select one:

a. it can be any amount that the country requests.

b. it is free of conditions.

c. it receives funds in tranches, each dependent on the completion of reform targets.

d. it receives all the funds from the loan at once.

Solution

11. We know that both China and India are one of the countries with largest population in the world. Due to large population, the prices that firms needs to pay are lesser as compared to the countries with the lower population.

Thus, The best explanation why China and India have received so much international interest is due to the large population of two countries.

Thus, Option C is the correct answer.

12. We all know that in case countries experience large and persistent deficits in their Balance of Payments, they are usually down with the foreign exchange reserves. In such a case, most of the countries opt for devaluation of their currencies and take some internal measures to reduce their trade deficits. Such harsh measures usually tend to contract economies and help them improve their BOP.

Thus, choosing fixed exchange rate system would mean that we are sacrificing the options or internal measures to improve our BOP in crisis.

Thus, Option e seems the correct answer.