Global Compass

Financial and Economic Management

International MBA
2020/2021

ACTIVITIES
1.- According to the trend in interest rates, mark the answer you consider true.

a) Interest rates follow an opposite cycle with inflation: when inflation rises, rates fall
and vice versa.
b) Interest rates are opposite to the stock market cycle, when interest rates fall, the
stock market goes up.
c) Interest rates remain the same cycle as the housing market; a rise in interest rates
causes a rise in property prices.
d) It is normal to see interest rates rising in a period of economic slowdown.

2.- What reason can there be for an increase of US GDP from 2% to 3%?

a) In US, the world's largest economy, GDP is always in continuous growth.

b) Probably, imports have increased.
c) Probably, exports have increased.
d) Probably, private consumption has decreased.

3.- What is meant by “overheated” economy?

a) Strong growth phase where supply exceeds demand.

b) Strong growth phase where demand exceeds supply and the imbalance generates
inflation.
c) Phase of strong reduction in the rate of change of GDP.
d) Phase of the cycle in which the indicators are starting to show some improvement.

4.- What is the effect of excessive and persistent growth of liquidity in the
financial system?

a) It has no effect on exchange rates.

b) Facilitates the creation of "financial bubbles".
c) It hinders access to credit for businesses and households.
d) Retracts consumption.

5.- Which is the impact of EURO appreciation to the economies of the Eurozone
in relation to the rest of the world?

a) Positive: induces to surplus in the balance of trade in the Eurozone.

b) Negative: induces to deficit in the trade balance of the Eurozone.
c) It has not impact on the trade balance.
d) It increases competitiveness of European companies versus American ones.

6.- What kind of economic indicators consider to be most useful when predicting
the future evolution of the economy?

a) Leading indicators.
b) Coincident indicators.
c) Lagging indicators.
d) Expansive indicators.
7.- The latest data published by the National Institute of Statistics (INE) show
growth above than expected in labour costs, high turnover of inventories and
tensions in the prices of raw materials.

a) Given that scenario is likely to see tax cuts from the government and reductions in
interest rates by the central bank.
b) It is likely that, simultaneously, is having a slowdown in inflation.
c) Most likely, business confidence indicators are well below what is considered
"normal".
d) For sure, the economy is in a period of full expansion with risks of overheating.

8.- The central bank has decided to decrease a quarter point the interest rate.
Additionally, the government has plans to increase tax benefits on
households and corporations. Based on this information, which of the
following statements do you think is false?

a) A consequence of these measures may be a worsening of public deficits in the

short term.
b) Normally, private consumption will improve.
c) There is an interest to slowdown the economy because clear risks of inflation.
d) It is most likely that the economy will experience some improvement in the near
future.

9.- The government has decided to spend more than it takes, so generating a
deficit in the Budget. Based on that information, mark the answer you
consider false.

a) The government is implementing an expansive policy; it is likely that economic

growth will accelerate as a result of that measure.
b) Surely, the measure would help to stabilize the economic situation. A measure of
this type usually has a positive impact on financial markets.
c) Such policy may end up causing a decline in long term interest rates.
d) With a measure like that, output growth is stimulated.

10.- Regarding the European Central Bank, mark the answer you consider false.

a) It is an independent body of political power.

b) It has a relative sovereignty on the design and implementation of monetary policy
in the Eurozone.
c) Designs and decides the strategy in monetary policy in EMU.
d) Its primary goal is to ensure price stability to safeguard the value of the euro.

11.- What are the basic instruments of monetary policy used by the European
Central Bank to influence in the money supply?

a) Two: repos or repurchase agreements, and open market operations.

b) Three: refinancing operations, fine-tuning operations and structural operations.
c) Three: open market operations, the application of minimum reserves requirement
and standing facilities (lending and deposit).
d) Two: control of the money supply and control of leading indicators.
12.- What are the implications of the reduction, by the central bank, of the
minimum reserve requirement which applies to financial institutions?

a) It is a restrictive monetary policy measure.

b) It is equivalent to inject liquidity into the financial system.
c) Consists in an operation of draining liquidity from the financial system.
d) It is usual to relax the reserve requirements during economic expansion.

13.- Which is the standing facility considered “the floor” for interest rates, where
the central bank drains liquidity from the financial system?

a) Minimum reserve requirement.

b) EURIBOR.
c) Marginal lending facility.
d) Deposit facility.

14.- What the ECB considers “price stability”?

a) Prices are stable when its annual growth rate is below 2% (but close to this level).
b) Prices are stable when the inflation differential between the country with the
highest rate and the country with the lowest rate is below 2%.
c) Price stability means that the European currency, the euro, suffers a low level of
volatility.
d) Nothing of the above is true.

15.- How many monetary aggregates are used in EMU?

a) The basics are 4 from M1 to M4.

b) The basics are 3, from M1 to M3.
c) Just M1 and M2.
d) Nothing of the above is true.

16.- The economy is in a clear slowdown and the ECB has decided to implement
some measures to stimulate economic growth. Which of the following measures
is less appropriate in order to achieve their goal?

a) Reduce the level of minimum reserves requirements.

b) Selling bonds to financial institutions.
c) Make injections of liquidity in the interbank system.
d) To activate the marginal lending facility.

17.- What would identify an expansionary monetary policy?

a) Central bank lowers taxes to increase public spending, facilitating economic

expansion.
b) Central bank raises interest rates restricting the level of liquidity in the financial
system.
c) Central bank lowers interest rates and increases the amount of money in the
financial system.
d) Central bank increases the minimum reserve requirement and activates the
deposit standing facility.
18.- The government has decided to spend more, so unbalancing the annual
budget. Based on that, which of the following answer can be false.

a) The government is implementing an expansive policy; probable, economic growth

will accelerate in the future.
b) This measure will contribute to stabilize economic situation in the short term, with
a positive impact in financial markets.
c) This measure will contribute to lower long term interest rates.
d) This measure stimulates investments and economic growth.

19.- Which is the main reason leading to a Central Bank to raise interest rates?

a) To moderate excessive gains in the stock market.

b) In order to reduce public deficit.
c) To fight against inflation risks.
d) Nothing of the above is true.

20.- Which is the relationship between inflation and monetary aggregates (M3)?

a) Direct, when one goes up the other does too.

b) Inverse, when one goes up the other goes down.
c) There is no relationship between the two variables.
d) It depends on the phase of the economic cycle.