Question

1. The U.S. current account deficit improved slightly from 2007 to 2010 because
   1. spending on imports fell due to an overall fall in consumption.
   2. state, local, and federal government budget deficits increased.
   3. worldwide economic growth prompted U.S. exports.
   4. capital controls restricted capital inflow.

2. Out of the following activities, which one is the TRUE statement?
   1. The free movement of financial capital is desirable for all countries.
   2. Foreign direct investment items have more liquidity than foreign portfolio investment items.
   3. In most of the financial crises of the last decade, there were large and sudden financial outflows as both home and foreign investors tried to avoid the expected crises.
   4. If the trade balance is negative, the current account balance will be negative.

3. Which of the following statement is true regarding the Gini Coefficient?
   1. The Gini coefficient ranges from a score of 0 to 1.
   2. A coefficient of 1 implies complete inequality of income; one person has all income and everyone else has no income.
   3. A coefficient of 0 implies complete equality of income; every person has the same income.
   4. All of the above.

4. (Based on Oatley, Chapter 16), which of the following statements is FALSE?
   1. According to Mazur (2000), globalization has dramatically decreased inequality between and within Nations for the last few decades.
   2. The world economy grew by approx. 3.5 percent annually between 1960 and 2000, compared to only 1 percent annual growth in the mid-nineteenth century.
   3. If we take a closer look at China and India, we find that the biggest beneficiaries of globalization over the last 40 years have been the world’s poorest individuals.
   4. Recent research suggests that the absolute number of people living in poverty fell by about 500 million between 1980 and 2008.

5. Which of the following rules is included in the Cash Standards of the ILO’s 1998 “Declaration on Fundamental Principles and Rights at Work”?
   1. maximum working hours
   2. minimum wages
   3. health and safety conditions in the workplace

1. All of the above

Answer 1

1. Option A

Adoption of Deflationary policies aiming at reducing the growth of aggregate demand and reducing inflation helped in improving current account deficit. These include tightening of fiscal policy or monetary policy; this will reduce aggregate demand. Higher interest rates will increase the cost of debt and mortgage repayments and leave people with less money to spend. Therefore, this will reduce their consumption of imports, improving the current account.

2.Option C

Capital outflow is the movement of assets out of a country. In crisis The flight of assets occurs when foreign and domestic investors sell off their holdings in a particular country because of perceived weakness in the nation's economy and the belief that better opportunities exist abroad. This is considered undesirable and results in economic instability.

3.Option D

The Gini coefficient ranges from 0 (perfect equality) to 1 (perfect inequality), which would be the case when one person receives all income. Gini coefficient measures the extent to which the distribution of income within an economy deviates from a perfectly equal distribution.

4.Option A

According to Mazur (2000), globalization has dramatically increased inequality between and within Nations for the last few decades. Globalization has shifted low-skilled jobs from wealthier countries to poorer countries, economic integration has increased inequality within countries.Globalization creates greater opportunities for firms in less industrialized countries to tap into more and larger markets around the world. Thus, businesses located in developing countries have more access to capital flows, technology, human capital, cheaper imports, and larger export markets.

5 Option D ( all of above)

ILO's 1998 Declaration of Fundamental Principles and Rights at Work include core labor standards and cash standards.Cash Standards include the stipulate outcomes that directly affect labor costs like minimum wages, working time limits, health and safety.