ECONOMIC DEVELOPMENT

SECOND PERIODICAL EXAMINATION

A.Y. 2022 – 2023

Direction: Shade the letter of your answer on the separate answer sheet provided. You can use
black ink marker or ball pen. Erasure means wrong. Cheating is strictly prohibited.

1. Many bankruptcies followed the collapse of the currency peg because:

a. Banks and companies were overleveraged
b. Banks and companies were underleveraged
c. Banks were paying interest on reserves
d. Companies were not trying to expand

2. When the financial problems of one nation spill over into another, this is known as a:
a. catallactic effect c. contagion effect
b. codependency effect d. bubble effect

3. One reason the currency peg snapped was due to:

a. attempts to institute a common currency
b. efforts to peg the currencies to the British pound
c. negative economic growth in the Asian countries
d. strong speculative flows against the currencies

4. A fixed exchange rate means that a currency's value comes from _____.
a. the value of the stock market
b. supply and demand for the currency
c. another currency it is pegged to
d. the amount of currency the government prints

5. Inflation occurs whenever

a. the price level rises
b. the money supply increases
c. the price level rises continuously over a period of time
d. the price level falls continuously over a period of time

6. Evidence strongly supports the view that countries with high inflation also have
a. the lowest nominal interest rates
b. the highest rates of money growth
c. the smallest budget deficits
d. the lowest interest rates

7. Factors other than money growth that can generate an inflation in monetarist analysis
include:
a. an increase in government spending
b. a tax reduction
c. an increase in net exports
d. none of the above

8. According to the monetarists, inflation is caused by

a. supply shocks
b. expansionary fiscal policies
c. expansionary monetary policies
d. rising prices

9. The purpose of foreign exchange markets is to allow people to

a. practice arbitrage
b. increase their country’s current account balances
c. increase their country’s capital account balances
d. buy and sell different currencies

10. One potential problem for a country with fixed exchange rates is that
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A.Y. 2022 – 2023

a. decrease in the demand for its currency can create a drain on foreign exchange
reserves used to maintain the exchange rate
b. the currency is probably prone to depreciation
c. exchange rates are fixed as a result of the devaluation of the currency
d. a current account deficit will result
e. merchandise imports will exceed merchandise exports

11. Some countries may not worry about an unfavorable balance on current account because
a. they know they can always borrow to cover the deficit
b. they import capital goods to build up export industries that will eventually
eliminate the deficit
c. deficits are always a stimulant to economic growth, which is a higher priority
d. they can, if necessary, fix the exchange rate to wipe out the deficit

12. A potential problem with free floating exchange rates is that

a. people who practice arbitrage may gain from the losses of others
b. uncertainty in exchange rate fluctuations may hinder international trade
c. exchange rates may never reach equilibrium
d. the currency markets may become monopolized
e. less-developed countries may issue too much currency

13. Which of the following countries is not directly affected by the Asian Crisis of 1997?
a. Philippines c. New Zealand
b. Thailand d. Indonesia

14. If the current account for a country is in deficit, then there must be
a. a surplus in the government budget
b. low interest rates
c. high productivity
d. a capital account surplus

15. Floating exchange rates refer to

a. the ability of exchange rates to even out when displaced by shocks to the foreign
exchange market
b. new issues of foreign exchange offered on the market
c. an exchange rate determined by the demand for and supply of a nation's currency
d. an excess demand for a nation's currency that causes its devaluation
e. an excess supply of a nation's currency that causes its appreciation

16. In an economy's balance of payments account

a. the capital and current accounts must add to one
b. the current account is always greater than the capital account
c. both the balance on current account and the balance on capital account are zero
d. the capital plus current account balances must equal zero

17. Given an unfavorable balance of trade, the current account can still be in surplus if
a. there is a larger value for merchandise imports
b. exports of services are less than imports of services
c. unilateral transfers of dollars out of the United States exceed unilateral transfers of
dollars into the United States
d. exports of services are greater than imports of services by enough to offset the
unfavorable trade balance

18. The balance on current account includes all of the following items except
a. merchandise exports minus merchandise imports
b. exports of services minus imports of services

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SECOND PERIODICAL EXAMINATION
A.Y. 2022 – 2023

c. income receipts minus income payments on investments

d. changes in U.S. assets owned abroad and foreign assets owned in the U.S.

19. One effect of an appreciation of the Philippine Peso is that

a. it increases the demand for PHP
b. Filipinos can buy imports more cheaply
c. household incomes decrease
d. foreigners will demand more Philippine exports

20. If the U.S. dollar appreciates relative to the Japanese yen, then
a. more yen will be required to purchase one dollar
b. fewer yen will be required to purchase one dollar
c. the dollar has weakened relative to the yen
d. Japan’s demand for U.S. goods will increase

21. The nominal interest rate is:

a. not adjusted for current economic conditions
b. adjusted for inflation
c. adjusted for deflation
d. not adjusted for inflation

22. If the nominal interest rate is 7% but domestic inflation is 4%, then the real interest rate is:
a. 2% c. 4%
b. 3% d. 5%

23. The rapid increase in the stock and real estate prices and bank credits of Asian economies
before the crisis is called
a. Ballooning Economy c. Contagion Effect
b. Bubble Economy d. Expanding Economy

24. A persistently unfavorable balance on current account indicates a balance of payments

problem if
a. it is the result of declining productivity in the economy and an inability to
compete in international markets
b. it is the result of large imports of basic goods such as oil
c. a strengthening of the nation’s currency increases the price of its exports to foreign
buyers
d. reserves of foreign currencies increase

25. Subtracting changes in foreign asset holdings in a country (capital inflows) from changes in
assets owned by that country abroad (capital outflows) gives the
a. external debt c. balance of trade
b. balance on current account d. balance on capital account

26. What term is used for a government plan to reduce aggregate demand and slow the
economy?
a. Contractionary fiscal policy
b. Discretionary fiscal policy
c. Expansionary fiscal policy
d. Stabilizing fiscal policy

27. What are the two basic tools that the federal government uses to influence the economy?
a. Entitlements and spending
b. Entitlements and wages
c. Taxation and spending
d. Taxation and wages

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28. Why is fiscal policy described as countercyclical?

a. It often produces the opposite effect of what was intended.
b. Rational expectations lead individuals to take countermeasures against the policy
c. Its goal is to smooth out the peaks and troughs of the business cycle.
d. It produces sharp ups and downs in economic performance.

29. What is the government doing when it issues bonds?

a. Investing in the stock market
b. Paying the growing interest on the national debt
c. Borrowing money it will have to repay in the future
d. Encouraging foreigners to invest in this country

30. If the government wants to slow down the economy, what action might it take?
a. Hire workers to create a new national park
b. Offer states federal funds for text book purchases
c. Double the excise tax on sales of gasoline
d. Lower corporate income tax rates

31. A central bank is

a. A bank centrally located in a region
b. A bank that has many branches
c. A city's primary bank
d. A nation's main monetary authority

32. This component of BOP represents changes in the assets of the monetary authorities that
can be used for international transactions.
a. Current Account
b. Capital and Financial Account
c. Net Change in Reserve Assets
d. Net Unclassified Items

33. Michael loaned Jim P1,000. Jim paid him back P1,100 one year later. The annual rate of
inflation was three percent (3%). What was the nominal interest rate that Michael earned
on this loan?
a. 10%
b. 3%
c. P100
d. 7%
e. P1,100

34. The Shelly Cooper Bank wants to make sure that the purchasing power of the interest that
they get paid on loans is at least 11%. Real GDP is increasing at 5% per year, and the
expected rate of inflation is 7% per year. If all banks in the Philippines want to earn the
same real return as the Shelly Cooper Bank, what is the nominal interest rate?
a. 6 percent
b. 16 percent
c. 11 percent
d. 18 percent
e. 12 percent

35. Jake Peralta borrowed P2,000 from Amy Santiago and promised to pay her back P2,500 a
year later. What is the nominal interest rate that Amy expects to earn if the rate of inflation
is 10 percent?
a. 10%
b. P500

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SECOND PERIODICAL EXAMINATION
A.Y. 2022 – 2023

c. 25%
d. 5%
e. 15%

36. The real interest rate is 4 percent a year. When the inflation rate is zero, the nominal
interest rate is approximately ________ percent a year; and when the inflation rate is 2
percent a year, the nominal interest rate is approximately ________ percent a year.
a. 0; 2
b. 4; 6
c. 6; 8
d. 6; 4

37. The ________ interest rate approximately equals the ________ interest rate minus ________.
a. nominal; real; depreciation
b. nominal; real; the inflation rate
c. real; nominal; depreciation
d. real; nominal; the inflation rate

38. Devaluation of currency means

a. reduction in the value of domestic currency by the market forces
b. reduction in the value of domestic currency by the government
c. an upward change in the currency's value.
d. a downward change in the exchange value of a country's currency compared to other
currencies in a floating rate system

39. When thw supply of foreign exchange increases, the equilibrium exchange rate will-
a. rise
b. fall
c. no change
d. be indeterminable

40. Which of the following best describes the impact if Japan places a tariff on Canadian
exports?
a. The demand for the Canadian dollar decreases and the supply of the Japanese yen
decreases.
b. The demand for the Canadian dollar increases and the supply of the Canadian dollar
increases.
c. The demand for the Canadian dollar decreases and the supply of the Japanese yen
increases.
d. The demand for the Canadian dollar increases and the supply of the Japanese yen
decreases.
e. The demand for the Canadian dollar increases and the supply of the Japanese yen
increases.

41. Which of the following is true if exchange rates are freely floating?
a. The free market forces of demand and supply determine the equilibrium
exchange rates.
b. The demand curve for the currency is upward sloping.
c. Only nominal values of currency can be determined.
d. The market determines the equilibrium value of the currency, but governments buy and
sell currency at a fixed rate.
e. Governments are unable to affect the international value of their currency.

42. The value of a country’s currency will tend to appreciate if

a. demand for the country’s exports increases
b. the country’s money supply increases

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A.Y. 2022 – 2023

c. the country’s citizens increase their travel abroad

d. domestic interest rates decrease
e. tariffs on the country’s imports decrease

43. Which of the following describes an equilibrium in the foreign exchange market?
a. A currency continues to appreciate
b. One unit of a currency is valued at one unit of another currency
c. A currency continues to depreciate
d. More of a currency is being supplied than people want to buy at the current exchange
rate
e. The quantity of a currency demanded is equal to the quantity of a currency
supplied

44. Which of the following best describes appreciation of a currency?

a. It takes less of another currency to purchase that currency
b. It takes more of another currency to purchase that currency
c. The domestic purchasing power of that currency has decreased
d. The domestic purchasing power of that currency has increased
e. More of that currency is needed to buy foreign goods

45. Which of the following describes who benefits from a depreciation of the Japanese yen in
international currency markets?
a. A Japanese citizen living off a Japanese pension while retired in Belize
b. Japanese buyers of Bolivian government issued bonds
c. Japanese citizens wanting to buy German cars
d. South African residents visiting Japan
e. Currency traders who hold large quantities of yen

46. Which of the following is a reason a government might increase government spending?
a. It is concerned that the unemployment rate is too high.
b. It is concerned that the level of output is too high.
c. It is concerned that the rate of inflation is too high.
d. It wants to lower the price level.
e. The economy is operating beyond its production possibilities curve (PPC).

47. The interest rate that the bank paid you on your savings account last year was 18%. One
year later you find that you can buy 12% more goods than you could last year. Based on this
information, what was the nominal interest rate (NRI), real interest rate (RIR), and the
inflation rate??

a. NIR - 18%
RIR - 12%
Inflation Rate - 6%
b. This cannot be determined without more information
c. NIR - 12%
RIR - 12%
Inflation Rate - 0
d. NIR - 30%
RIR - 18%
Inflation Rate - 12%
e. None of these is correct.

48. Which of the following best describes a depreciated currency?

a. The value of two currencies has equalized
b. It takes more of another currency to buy that currency
c. It takes less of another currency to buy that currency

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d. The depreciated currency can buy fewer domestic goods and services
e. The depreciated currency can buy more domestic goods and services

49. Mercedes is traveling to Russia from the Philippines for the World Cup to root for the
Philippine team in their match against Iceland. The currency of the Philippines is the Peso,
and the currency of Russia is the Ruble. If Mercedes hears that the Peso has appreciated,
which of the following best describes the impact the appreciation has on her trip?
a. The value of the Peso and the Ruble are now equal to each other.
b. The number of Pesos it takes to buy a Ruble is higher than the number of Rubles it takes
to buy a Peso.
c. The number of Pesos it takes to buy a Ruble is smaller than the number of Rubles it
takes to buy a Peso.
d. Her purchasing power has decreased.
e. Her purchasing power has increased.

50. Which of the following best describes what an exchange rate is in the foreign exchange
market?
a. The quantity of goods and services a currency can buy in other countries
b. How much of one currency it takes to buy another currency
c. The purchasing power of a currency domestically
d. The interest rate
e. The ratio of how much goods cost in one country relative to another country

51. ________________ linked the East Asian markets for goods and assets much more closely to the
markets of other countries.
a. globalization and international capital mobility
b. globalization
c. international capital mobility
d. global financial markets

52. This regime gets into trouble when reserves start to fall, most often because of a large
current account deficit, a drop in foreign investment, or lenders’ reduced willingness to roll
over the country’s debts.
a. Floating exchange rate regime
b. Fixed exchange rate regime
c. Flexible exchange rate regime
d. Manage float

53. Between June and November that year, there were even steeper decline in stock prices for
US currency-between ________ in Indonesia, Malaysia, Korea and Philippines and Thailand.
a. 20% to 30%
b. 30% to 40%
c. 40% to 50%
d. 50% to 60%

54. A loan that is in default due to the fact that the borrower has not made the scheduled
payments for a specified period.
a. Conventional loan
b. Nonconventional loan
c. Nonperforming loan
d. Closed-end loan

55. BOP accounting practices double-entry bookkeeping. Each transaction is recorded as a debit
and credit in the balance of payments. Which of the following is not a debit item?
a. Import of goods and services
b. Non-resident transfers to residents

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A.Y. 2022 – 2023

c. Increase in foreign assets

d. Decrease in foreign liabilities

56. During a recession, which of the following is likely to occur?

a. an increase in real wages
b. an increase in production
c. and increase in the GDP growth rate
d. an increase in the unemployment rate

57. John M. Keynes is best known for advocating:

a. A policy of annually balancing the budget.
b. Deficit spending during some recessions.
c. Contractionary fiscal policy during a recession.
d. Expansionary fiscal policy during a boom.

58. Which of the following is the definition of a budget deficit?

a. Excess of the total expenditure over the total receipts minus interest payments and
borrowings
b. Excess of the total expenditure over the total receipts minus borrowings
c. Excess of the revenue expenditure over the revenue receipts
d. Excess of the total expenditure over the total receipts

59. Based on the supply and demand model of the exchange rate, which of the following should
cause the Philippine peso to appreciate?
a. Concern abroad over the safety of Philippine toy exports.
b. An increase in remittances from Philippine workers abroad to their families at home.
c. Repayment by the Philippine government of its debt to the IMF.
d. Increased imports by Philippine consumers of electronics made in Taiwan.
e. An increase in Philippine savings that is used to purchase financial assets in Europe.

60. How does inflation rate affect currency value/exchange rate?

a. Higher inflation leads to depreciating currency & vice versa
b. Increasing inflation leads to more favorable exchange rates
c. Higher inflation leads to currency appreciation
d. Lower inflation leads to more favorable exchange rate

“May the God of hope fill you

with all joy and peace as you trust in him, so that you may overflow with hope
by the power of the Holy Spirit.”
Romans 15:13

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