Question 1

What are the five major forces that can lead to financial crises? Explain each of these forces in depth.

Accepted Answer

The five different forces that may lead

Question 2

By restricting foreign lending, a country with sufficient market power can:

Accepted Answer

A) increase world production. 
B) lower world interest rates. 
C) bid up the rate that domestic lenders get after taxes. 
D) bid up the rate that foreign borrowers have to pay. 
A) increase world production. 
B) lower world interest rates. 
C) bid up the rate that domestic lenders get after taxes. 
D) bid up the rate that foreign borrowers have to pay.

Question 3

Explain how the Russian crisis of 1998 began. What precipitated the crisis?

Accepted Answer

Russia had a large budget deficit and th

Question 4

Prior to mid-1980s, almost all loans extended by IMF were repaid on time.

Accepted Answer

A) True 
 B)False

Question 5

The large net international lender since 1980 has been:

Accepted Answer

A) the United States. 
B) the United Kingdom. 
C) Russia. 
D) Japan. 
A) the United States. 
B) the United Kingdom. 
C) Russia. 
D) Japan.

Question 6

The 1997 Asian crisis first struck in:

Accepted Answer

A) Thailand. 
B) Hong Kong. 
C) Singapore. 
D) South Korea. 
A) Thailand. 
B) Hong Kong. 
C) Singapore. 
D) South Korea.

Question 7

International financial freedom:

Accepted Answer

A) maximizes world product. 
B) hurts poor countries. 
C) hurts wealthy countries. 
D) helps all citizens in both poor and wealthy countries. 
A) maximizes world product. 
B) hurts poor countries. 
C) hurts wealthy countries. 
D) helps all citizens in both poor and wealthy countries.

Question 8

A prominent feature of the IMF conditionality programs is nationalization of key industries.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is a major benefit of international lending?

Accepted Answer

A) It allows improvements in the current account balances of the borrowing nations. 
B) It requires reducing restrictive trade practices in the lending and the borrowing countries. 
C) It allows countries to reduce taxes in the domestic market. 
D) It allows lenders and investors to diversify their investments more broadly. 
A) It allows improvements in the current account balances of the borrowing nations. 
B) It requires reducing restrictive trade practices in the lending and the borrowing countries. 
C) It allows countries to reduce taxes in the domestic market. 
D) It allows lenders and investors to diversify their investments more broadly.

Question 10

The Brady Plan helped to end:

Accepted Answer

A) the 1997 currency crisis. 
B) the 1982 debt crisis. 
C) the 1991 global recession. 
D) the European debt crisis. 
A) the 1997 currency crisis. 
B) the 1982 debt crisis. 
C) the 1991 global recession. 
D) the European debt crisis.

Question 11

Borrowers in wealthy countries that have few domestic investment opportunities would gain if:

Accepted Answer

A) all restrictions on capital flows between nations were removed. 
B) capital flows between nations are prohibited. 
C) factor-price-equalization takes place. 
D) governments allowed free markets to determine interest rates. 
A) all restrictions on capital flows between nations were removed. 
B) capital flows between nations are prohibited. 
C) factor-price-equalization takes place. 
D) governments allowed free markets to determine interest rates.

Question 12

Which of the following measures to resolve financial crises involves loan commitments to assist a country in getting through a crisis?

Accepted Answer

A) Debt repudiation 
B) Loan amortization 
C) A rescue package 
D) Debt restructuring 
A) Debt repudiation 
B) Loan amortization 
C) A rescue package 
D) Debt restructuring

Question 13

The currency depreciations and the recessions during the Asian crisis did lead to improvement in the Asian countries' current account balances, largely through:

Accepted Answer

A) increases in exports. 
B) decreases in capital outflows. 
C) decreases in imports. 
D) increases in the rate of inflation in these countries. 
A) increases in exports. 
B) decreases in capital outflows. 
C) decreases in imports. 
D) increases in the rate of inflation in these countries.

Question 14

The global financial and economic crisis that began to develop in 2007:

Accepted Answer

A) arose in industrial countries. 
B) arose in developing countries. 
C) was worse than the Great Depression of the 1930's. 
D) was the result of a prolonged period of declining wolrd production. 
A) arose in industrial countries. 
B) arose in developing countries. 
C) was worse than the Great Depression of the 1930's. 
D) was the result of a prolonged period of declining wolrd production.

Question 15

Standard loans of the IMF to assist a country to address its balance of payment problems are called:

Accepted Answer

A) stand-by arrangements. 
B) extended funds. 
C) supplemental reserves. 
D) compensatory financing measures. 
A) stand-by arrangements. 
B) extended funds. 
C) supplemental reserves. 
D) compensatory financing measures.

Question 16

Consider a situation where there is well-behaved international lending between two countries: Atlantica and Pacifica. Assume that Pacifica is wealthier than Atlantica. Illustrate this situation using a graph that relies upon the marginal-product of capital curves to show the possible investments in each country according to the returns the investments produce. Use the graph to explain the gains to each country from international lending.

Accepted Answer

The diagram given below illustrates the

Question 17

Just before the Asian crisis, Thailand had large current account deficits.

Accepted Answer

A) True 
 B)False

Question 18

Capital outflow from a country during a financial crisis will:

Accepted Answer

A) put pressure on local financial institutions. 
B) result in an appreciation of the domestic currency. 
C) lower domestic interest rates. 
D) lower foreign stock prices. 
A) put pressure on local financial institutions. 
B) result in an appreciation of the domestic currency. 
C) lower domestic interest rates. 
D) lower foreign stock prices.

Question 19

Which of the following is a controversial proposal for reducing the frequency of financial crises?

Accepted Answer

A) Countries should pursue sound macroeconomic policies. 
B) Countries should improve the quality and timeliness of the data they report on their international reserves and debt. 
C) Developing countries should increase the use of controls or impediments to capital inflows. 
D) Countries should strive for better supervision and regulation of their banks. 
A) Countries should pursue sound macroeconomic policies. 
B) Countries should improve the quality and timeliness of the data they report on their international reserves and debt. 
C) Developing countries should increase the use of controls or impediments to capital inflows. 
D) Countries should strive for better supervision and regulation of their banks.

Question 20

A moral hazard arises when:

Accepted Answer

A) risk averse individuals do not purchase insurance. 
B) high risk individuals are unable to find insurance. 
C) insurers are unable to fully pay legitimate claims. 
D) insurance leads the insured to be less careful. 
A) risk averse individuals do not purchase insurance. 
B) high risk individuals are unable to find insurance. 
C) insurers are unable to fully pay legitimate claims. 
D) insurance leads the insured to be less careful.

Exam 21: International Lending and Financial Crises

What are the five major forces that can lead to financial crises? Explain each of these forces in depth.

By restricting foreign lending, a country with sufficient market power can:

Explain how the Russian crisis of 1998 began. What precipitated the crisis?

Prior to mid-1980s, almost all loans extended by IMF were repaid on time.

The large net international lender since 1980 has been:

The 1997 Asian crisis first struck in:

International financial freedom:

A prominent feature of the IMF conditionality programs is nationalization of key industries.

Which of the following is a major benefit of international lending?

The Brady Plan helped to end:

Borrowers in wealthy countries that have few domestic investment opportunities would gain if:

Which of the following measures to resolve financial crises involves loan commitments to assist a country in getting through a crisis?

The currency depreciations and the recessions during the Asian crisis did lead to improvement in the Asian countries' current account balances, largely through:

The global financial and economic crisis that began to develop in 2007:

Standard loans of the IMF to assist a country to address its balance of payment problems are called:

Just before the Asian crisis, Thailand had large current account deficits.

Capital outflow from a country during a financial crisis will:

Which of the following is a controversial proposal for reducing the frequency of financial crises?

A moral hazard arises when:

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

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