Policies to correct disequilibrium in the balance of payments — Paper 3 · A Level Economics 9708

26 Which policy is most likely to reduce a balance of payments deficit without causing inflation? A a devaluation of the exchange rate B an increase in import tariffs C an increase in indirect taxes D an increase in direct taxes

1 marks

Answer: D

This question in 9708/33 May/June 2010

17 Despite a government budget deficit, a country’s money supply remains unchanged. What could explain this? A The country has a balance of payments surplus equal to the government budget deficit. B The country’s foreign exchange rate is fixed. C The government budget deficit is financed by borrowing from the central bank. D The government budget deficit is financed by selling government bonds to members of the public.

1 marks

Answer: D

This question in 9708/32 Oct/Nov 2011

30 The government of Lesotho introduces a programme to promote exports and to encourage firms to grow by subsidising local entrepreneurs. What effect is this likely to have on incomes, the balance of payments current account deficit and government expenditure in Lesotho? balance of government incomes payments current expenditure account deficit A fall uncertain rise B rise reduce no change C fall reduce rise D rise uncertain rise

1 marks

Answer: D

This question in 9708/31 May/June 2012

29 An economy has a balance of payments trade surplus and a high level of inflation. What would be an appropriate action for a government to take? A devalue the currency B reduce direct taxes C increase the money supply D remove tariffs on imports

1 marks

Answer: D

This question in 9708/33 May/June 2013

29 A country has a fixed exchange rate. Which combination of problems would be most likely to cause the country’s government to reduce taxation and lower interest rates? A demand inflation and a balance of payments current account deficit B demand inflation and a low level of investments C high unemployment and a balance of payments current account deficit D high unemployment and a low level of investment

1 marks

Answer: D

This question in 9708/31 Oct/Nov 2013

27 In an economy with a fixed exchange rate, which combination of policies is likely to be most effective at tackling both a growing current account deficit on the balance of payments and rising inflationary pressure? A a budget deficit and higher interest rates B a budget deficit and lower interest rates C a budget surplus and higher interest rates D a budget surplus and lower interest rates

1 marks

Answer: C

This question in 9708/31 May/June 2015

28 A country with demand-pull inflation decides to fix its exchange rates against other currencies above the purchasing power parities. What is likely to happen to the macroeconomic indicators shown? current account interest rate inflation rate balance A decrease decrease improve B decrease increase worsen C increase decrease worsen D increase increase improve

1 marks

Answer: C

This question in 9708/32 May/June 2017

29 In an economy, the elasticity of demand for imported raw materials is 0.3 and the elasticity of demand for exports is also 0.3. Following a depreciation of the economy’s currency, what will be the impact on inflation? change in cost push change in demand factors will cause pull factors will inflation to cause inflation to A decrease decrease B decrease increase C increase decrease D increase increase

1 marks

Answer: C

This question in 9708/32 Oct/Nov 2020

30 What is most likely to be an appropriate government action to reduce both a balance of payments current account surplus and the rate of inflation? A decrease the rate of interest B devalue the currency C increase direct taxes D remove tariffs on imports

1 marks

Answer: D

This question in 9708/32 Oct/Nov 2021

24 Country X decides to devalue its currency to eliminate a balance of payments deficit. Why might devaluation have a positive effect on its macroeconomy? A Competitive pricing of exports may create employment potential in country X. B Foreign importers may depreciate their own currencies and reduce any advantage gained by country X. C Inelastic demand for imported raw materials may lead to cost inflation in country X. D Loss of import duties by country X may reduce government backing for trade promotion.

1 marks

Answer: A

This question in 9708/32 Feb/March 2023

29 What is an example of an expenditure-switching policy? A an increase in income tax rates B an increase in interest rates C an increase in tariff rates D an increase in the supply of money

1 marks

Answer: C

This question in 9708/32 Feb/March 2023

28 The diagram shows a J curve which indicates that a fall in the exchange rate will worsen the current account position before it starts to improve. J curve current account surplus O time current account deficit What is said to explain this? A a time lag before recognising that prices have changed B an improvement in the quality of goods produced C the demand for imports and exports is elastic in the short run D the supply of goods is price elastic

1 marks

Answer: A

This question in 9708/32 May/June 2023

23 What shows the correct outcome for the policy option? policy option outcome A depreciation of the exchange rate encourages more exports, which also means greater employment B higher interest rates attracts hot money inflows, and is an incentive for more consumer spending C decreased government spending more workers will be employed, and more imports will be bought D reduction in income taxes increases consumer spending, with increased demand for exports

1 marks

Answer: A

This question in 9708/31 Oct/Nov 2023

25 What is not an example of an expenditure-reducing policy? A a decrease in government spending B a depreciation of the exchange rate C an increase in direct taxes D an increase in interest rates

1 marks

Answer: B

This question in 9708/31 May/June 2024

26 What does the J-curve effect show? A A successful currency depreciation requires the sum of the import and export elasticities of demand to be greater than 1. B After a currency devaluation, the current account is likely to get worse before it gets better. C In the short run, the demand for imports and exports tends to be price elastic. D The value of the terms of trade will affect the success of a currency’s devaluation.

1 marks

Answer: B

This question in 9708/31 May/June 2024

25 What is not an example of an expenditure-reducing policy? A a decrease in government spending B a depreciation of the exchange rate C an increase in direct taxes D an increase in interest rates

1 marks

Answer: B

This question in 9708/33 May/June 2024

26 What does the J-curve effect show? A A successful currency depreciation requires the sum of the import and export elasticities of demand to be greater than 1. B After a currency devaluation, the current account is likely to get worse before it gets better. C In the short run, the demand for imports and exports tends to be price elastic. D The value of the terms of trade will affect the success of a currency’s devaluation.

1 marks

Answer: B

This question in 9708/33 May/June 2024