Practice MCQsBuild a paperTopical banksYearly papersBuild a paperPricing
Topical›Economics 9708›International economic issues (AS Level)›Policies to correct imbalances in the current account of the balance of payments›Paper 1

Policies to correct imbalances in the current account of the balance of payments — Paper 1 · A Level Economics 9708

6.5· 130 questions · 130 marks · 156 min · 2005–2025· Multiple choice

Every Cambridge A Level Economics Paper 1 question on policies to correct imbalances in the current account of the balance of payments, laid out as 31 A4 pages with the mark scheme below. Nothing is left out. Free to read, no account.

QuestionsMark scheme
Different topic or paper

Questions31 pages

Question 1: Which policy would be most likely to reduce a balance of payments current account deficit? A reducing income tax rates B reducing subsidies…Question 2: In an attempt to correct a balance of trade deficit the government of Indonesia has decided to employ expenditure-dampening methods. Which …Question 3: In which of the following circumstances will devaluation of the external value of a country’s currency have the greatest beneficial effects…Question 4: A country with a freely floating exchange rate has a persistent deficit on the current account of its balance of payments. Which policy can…1 / 31
Question 5: In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports …Question 6: The table shows observations of the exchange rate of an economy and its current account balance over six years. exchange rate current accou…Question 7: Which measure to correct a balance of payments current account deficit would be classified as an expenditure-dampening policy? A a reductio…2 / 31
Question 8: A country has a large current account deficit. Its government decides to devalue its currency. In which circumstance would such a measure r…Question 9: When is a deficit on the current account of the balance of payments likely to worsen? A when the government adopts a deflationary macroecon…Question 10: When is a deficit on the current account of the balance of payments likely to worsen? A when the government adopts a deflationary macroecon…Question 11: When is a deficit on the current account of the balance of payments likely to worsen? A when the government adopts a deflationary macroecon…Question 12: In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports …3 / 31
Question 13: In 2008 the Chinese government was under pressure from other countries to reduce its current account surplus on its balance of payments. Wh…Question 14: In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports …Question 15: In 2008 the Chinese government was under pressure from other countries to reduce its current account surplus on its balance of payments. Wh…4 / 31
Question 16: In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports …Question 17: In 2008 the Chinese government was under pressure from other countries to reduce its current account surplus on its balance of payments. Wh…Question 18: The table shows observations of the exchange rate of an economy and its current account balance over six years. exchange rate current accou…5 / 31
Question 19: The table shows observations of the exchange rate of an economy and its current account balance over six years. exchange rate current accou…Question 20: The table shows observations of the exchange rate of an economy and its current account balance over six years. exchange rate current accou…6 / 31
Question 21: A country at the beginning of a given period seeks to improve the current account of its balance of payments by devaluing its currency. The…Question 22: When will a country’s balance of payments current account deficit be reduced? A when it raises its rate of income tax B when it reduces tar…Question 23: A country at the beginning of a given period seeks to improve the current account of its balance of payments by devaluing its currency. The…7 / 31
Question 24: A government decides to reduce the quota on imported cars from 2000 to 1000 per year. What is likely to happen? A The balance of trade may …Question 25: A country has a deficit on the current account of its balance of payments. What might help the country to reduce its deficit? A a decrease …Question 26: A government decides to reduce the quota on imported cars from 2000 to 1000 per year. What is likely to happen? A The balance of trade may …Question 27: The currency of a country is fixed by the Central Bank at a certain value in terms of US dollars. If currency devaluation is not possible, …Question 28: Assuming that the supply of exports and imports are perfectly elastic, at which combination of elasticities of demand for imports and expor…8 / 31
Question 29: A country has a deficit on the current account of its balance of payments. What might help the country to reduce its deficit? A a decrease …Question 30: What is an example of an expenditure-dampening policy? A an increase in income tax rates B an increase in the level of import tariffs C an …Question 31: A government believes that it can reduce its trade deficit by the introduction of a tax on its main export. When is this likely to be most …Question 32: When is the imposition of a tariff on a good most likely to reduce a trade deficit? A when the country has a potential comparative advantag…Question 33: A country has a balance of payments disequilibrium with a long-run deficit on its current account. Which outcome of the disequilibrium will…Question 34: What is an expenditure-switching policy measure? A decreasing income tax B decreasing the money supply C devaluing the currency D increasin…9 / 31
Question 35: Which policy, adopted by a government with the intention of reducing the rate of inflation, might cause a greater deficit on the balance of…Question 36: What is likely to result in an increase in a country’s balance of payments deficit (disequilibrium) in the short run but may reduce it in t…Question 37: In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports …Question 38: A country has a long running current account deficit on the balance of payments. Its government was using an expenditure switching policy b…10 / 31
Question 39: An economy has a high level of unemployment and a large balance of payments deficit on the current account. What would be a suitable policy…Question 40: What is most likely to immediately reduce the deficit on the current account of a country’s balance of payments? A a cut in its interest ra…Question 41: What would most help a country to achieve a surplus on the current account of the balance of payments? A a depreciating exchange rate combi…Question 42: Devaluation always has the effect of A decreasing the price of imports. B decreasing the value of imports. C worsening the balance of payme…Question 43: Policies to correct a balance of payments deficit fall into two categories: expenditure-dampening policies and expenditure-switching polici…11 / 31
Question 44: The table shows observations of the exchange rate of an economy and its current account balance over six years. exchange rate current accou…Question 45: To reduce a deficit on the current account of the balance of payments, a government imposes a limit on the foreign exchange its people and …Question 46: Demand for imports is often price inelastic in the short term. Over time, demand tends to become more price elastic. What does this help to…12 / 31
Question 47: An economy has a high rate of inflation and a balance of payments deficit. Which policy change would help to reduce the balance of payments…Question 48: When is a deficit on the current account of the balance of payments likely to worsen? A when a government adopts a deflationary macroeconom…Question 49: A government has low reserves of foreign currency. When would it be most likely to consider a deficit on current account to be a serious pr…Question 50: China had US$155 billion current account surplus in 2012. Which combination of policies might the Chinese Government use to restore equilib…Question 51: An economy with a fixed exchange rate experiences an increased deficit on the current account of the balance of payments. What is most like…13 / 31
Question 52: A government devalues its exchange rate. What is most likely to be its aim? A to decrease a current account surplus B to decrease demand-pu…Question 53: Possible policies a government might use to reduce a deficit on the current account of the balance of payments include devaluation, governm…Question 54: Which policy measure is an expenditure-switching measure designed to reduce a current account surplus? A a cut in income tax rates B a depr…Question 55: A country faces twin problems of deflation and a current account deficit on the balance of payments. It decides to run a budget deficit and…Question 56: Possible policies a government might use to reduce a deficit on the current account of the balance of payments include devaluation, governm…14 / 31
Question 57: In an attempt to correct a balance of trade deficit, the government of Indonesia has decided to employ expenditure-dampening methods. Which…Question 58: What would be the best policy for a country to reduce a balance of payments deficit? A an increase in interest rates B an increase in the e…Question 59: Which measure to correct a balance of payments current account deficit would be classified as an expenditure-dampening policy? A a reductio…Question 60: What is the most effective policy to correct a deficit on the current account of the balance of payments? A appreciation of the currency B …Question 61: A country has a large current account deficit. Its government decides to devalue its currency. In which circumstance would such a measure r…15 / 31
Question 62: A country with a fixed exchange rate has a current account surplus on its balance of payments. What is most likely to reduce this surplus? …Question 63: What is an example of an expenditure-dampening policy? A an increase in income tax rates B an increase in the level of import tariffs C an …Question 64: Policies to correct a balance of payments deficit fall into two categories: expenditure-dampening policies and expenditure-switching polici…Question 65: If an economy has a floating exchange rate, which policy could have an expansionary effect on national income with the smallest reduction o…Question 66: When will a country’s balance of payments current account deficit be reduced? A when it lowers tariffs on its imports B when it raises its …16 / 31
Question 67: A country at the beginning of a given period seeks to improve the current account of its balance of payments by devaluing its currency. The…Question 68: Suppose a country has a rate of inflation well below its target rate, high unemployment and a large balance of payments deficit. What would…Question 69: A country has a deficit on the current account of the balance of payments. Which policy would be expected to increase the deficit? A an app…17 / 31
Question 70: The demand for a country’s exports is price-elastic. What will be the effect of introducing export subsidies on its balance of trade and on…Question 71: Which policy is not likely to help reduce a balance of payments deficit? A an increase in expenditure promoting locally produced goods B an…Question 72: China had a US$155 billion current account surplus in 2012. Which combination of policies might the Chinese Government use to reduce the su…Question 73: To what does the J curve effect directly relate? A balance of payment effects caused by exchange rate changes B exchange rate effects cause…Question 74: If an economy experiences a persistent balance of trade deficit, it may choose to place tariffs on imports of manufactured goods. When migh…18 / 31
Question 75: Which policy is most likely to help to correct an adverse balance on the current account of the balance of payments? A abolishing tariffs B…Question 76: In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports …Question 77: A country has a long-running current account deficit on the balance of payments. Its government was using an expenditure-switching policy b…Question 78: What does the Marshall-Lerner condition state must be present for a depreciation of a currency to cause an improvement in the current accou…19 / 31
Question 79: A country with low unemployment and a managed floating exchange rate has a persistent current account deficit on its balance of payments. W…Question 80: A country with a balance of trade deficit raises interest rates. How may this help to reduce the deficit in the short run? A by increasing …Question 81: A country devalues its currency in the expectation that a deficit on the current account of the balance of payments will be reduced. What i…Question 82: A country’s balance of payments current account is in deficit. How can this be restored to equilibrium, assuming the Marshall-Lerner condit…20 / 31
Question 83: An economy changes its exchange rate at time T. balance of trade surplus + T 0 time balance of trade deficit – What does the J-curve diagra…Question 84: An economy has a balance of payments surplus, which it wishes to eliminate. In order to achieve this objective, which combination of police…Question 85: Which policy would assist in reducing a deficit within the balance of payments? A increasing interest rates B increasing the money supply C…Question 86: Under which conditions will an appreciation of a floating exchange rate cause the current account of the balance of payments to worsen the …21 / 31
Question 87: A country with a fixed exchange rate and a deficit in the current account of its balance of payments enters a recession. It devalues its cu…Question 88: What is an expenditure-switching policy to reduce a country’s balance of payments deficit? A an increase in budget surplus B an increase in…Question 89: In 2018 the United States (US) government introduced tariffs on a wide range of imports from China. Which type of policy was the US governm…Question 90: A government decides to devalue the country’s currency to remove the deficit on its current account of the balance of payments. What is the…Question 91: Why is a balance of payments deficit a potential problem for an economy with a fixed exchange rate? A Domestic money supply will increase. …22 / 31
Question 92: Which policy measure is an expenditure-switching measure designed to reduce a current account surplus? A a cut in income tax rates B a depr…Question 93: A country has a deficit of $300 million on the current account of its balance of payments. It devalues its currency in an attempt to reduce…Question 94: When is a deficit on the current account of the balance of payments likely to worsen? A when a government adopts a deflationary macroeconom…Question 95: A country has a balance of payments deficit. It devalues its currency. Which combination leads to a reduction in its balance of payments de…Question 96: Devaluation always has the effect of A decreasing the price of imports. B decreasing the value of imports. C worsening the balance of payme…23 / 31
Question 97: A country has a persistent balance of payments deficit. What is most likely to improve the situation in the long run? A a lowering of the l…Question 98: A country has a deficit on the current account of its balance of payments. What might help the country to reduce its deficit? A a decrease …Question 99: A government devalues its fixed exchange rate. What is most likely to be its aim? A to improve the terms of trade B to increase the level o…Question 100: As part of its trade policy, a government subsidises the cost of machinery used to manufacture goods for export. How will this affect the b…Question 101: Which policy aimed at correcting a balance of trade deficit is an expenditure-reducing policy? A depreciation of the currency B increased d…24 / 31
Question 102: A country has a balance of trade deficit. When will this be least likely to be improved as a result of a depreciation of its currency? A if…Question 103: An economy experiences a deficit on the current account of its balance of payments. What could the economy do to finance this deficit? A ad…Question 104: The balance of payments on the current account for Guatemala in 2011 was –US$1.6 bn and in 2016 was +US$1.0 bn. What is most likely to have…Question 105: Which condition is necessary for a country’s balance of payments on its current account to improve if it reduced its exchange rate? A Both …Question 106: ‘Reducing the exchange rate helps to decrease a country’s balance of payments deficit because it makes imports more expensive and exports c…25 / 31
Question 107: The government of a country is worried about a large deficit on the current account of its balance of payments and an increasing rate of in…Question 108: A country operates a fixed exchange rate system. What will put pressure on the country to devalue its currency? A a decrease in the country…Question 109: The table gives different combinations of possible values for a country’s price elasticity of demand for exports and price elasticity of de…Question 110: A country with low unemployment and a managed floating exchange rate has a persistent current account deficit on its balance of payments. W…26 / 31
Question 111: The diagram shows the aggregate demand (AD) and aggregate supply (AS) for a country. The initial equilibrium is at point E. The sum of the …Question 112: Which measure to correct a balance of payments current account deficit would be classified as an expenditure-reducing policy? A a reduction…Question 113: An economy has a balance of payments surplus, which it wishes to eliminate. In order to achieve this objective, which combination of polici…Question 114: What does the Marshall–Lerner condition state must be present for a depreciation of a currency to cause an improvement in the current accou…27 / 31
Question 115: Raising interest rates is proposed to reduce a balance of payments deficit. Which justification for this action is not valid? A It will att…Question 116: Which government policy is most likely to cause expenditure switching that will benefit a country’s current account? A increasing import qu…Question 117: A government raises interest rates to improve the current account of the balance of payments. What might reduce the effectiveness of this p…Question 118: A government orders its central bank to buy its domestic currency on the foreign exchange markets in the belief that this will improve the …Question 119: Which combination of policies would be most effective in reducing a balance of payments current account surplus? a decrease in a devaluatio…28 / 31
Question 120: Which policy is most likely to help to correct an adverse balance on the current account of the balance of payments? A abolishing tariffs B…Question 121: A country had a current account surplus of $141bn. Which policy may its government implement to reduce this surplus in the short run? A a d…Question 122: A government decides to allow the country’s currency to depreciate to remove the deficit on its current account of the balance of payments.…Question 123: What would be the best policy for a country to reduce a balance of payments deficit? A an increase in interest rates B an increase in the e…Question 124: The demand for a country’s exports is price elastic. If it is experiencing a deficit on the current account of its balance of payments, whi…29 / 31
Question 125: A government subsidises training to improve the skills of workers in the industrial sector of an economy. What is the most likely effect on…Question 126: Which policy is most likely to reduce a balance of payments deficit without causing inflation? A decreased import quotas B depreciation of …Question 127: What is not a valid explanation of why a government might allow a deficit on the balance of payments current account to continue? A The bal…Question 128: A country has a persistent deficit on the current account of its balance of payments. What is most likely to improve the situation in the l…Question 129: A country is experiencing a deficit on the current account of its balance of payments. Which policy decision could reduce the deficit? A de…30 / 31
Question 130: A country has a current account deficit on its balance of payments. The government also has a budget deficit. Which measure to reduce the c…31 / 31

Mark scheme130 answers

Answers below. Sit the paper first if you are practising.

Pastlit

Economics 9708 · Policies to correct imbalances in the current account of the balance of payments — Paper 1

A Level · topical answer key — answer key (teacher use)

Question

Answer

Marks

1C1
2B1
3D1
4C1
5B1
6C1
7B1
8D1
9C1
10C1
11C1
12B1
13A1
14B1
15A1
16B1
17A1
18C1
19C1
20C1
21A1
22A1
23A1
24A1
25D1
26A1
27D1
28A1
29D1
30A1
31C1
32A1
33A1
34C1
35A1
36B1
37B1
38D1
39B1
40B1
41B1
42D1
43A1
44C1
45A1
46A1
47B1
48C1
49D1
1 / 3

Pastlit

Economics 9708 · Policies to correct imbalances in the current account of the balance of payments — Paper 1

A Level · topical answer key — answer key (teacher use)

Question

Answer

Marks

50A1
51B1
52D1
53D1
54C1
55B1
56B1
57B1
58A1
59C1
60B1
61D1
62B1
63A1
64A1
65B1
66B1
67A1
68A1
69A1
70B1
71B1
72A1
73A1
74D1
75B1
76B1
77D1
78C1
79A1
80D1
81D1
82D1
83B1
84B1
85A1
86D1
87D1
88C1
89B1
90D1
91C1
92D1
93C1
94C1
95C1
96D1
97D1
98D1
2 / 3

Pastlit

Economics 9708 · Policies to correct imbalances in the current account of the balance of payments — Paper 1

A Level · topical answer key — answer key (teacher use)

Question

Answer

Marks

99B1
100B1
101B1
102B1
103B1
104D1
105C1
106D1
107D1
108C1
109A1
110A1
111B1
112C1
113B1
114C1
115D1
116D1
117D1
118—1
119C1
120B1
121A1
122D1
123A1
124D1
125B1
126C1
127A1
128D1
129D1
130D1
3 / 3
QuestionAnswerMarksFrom
1C19708/11 Oct/Nov 2005
2B19708/11 May/June 2006
3D19708/11 Oct/Nov 2006
4C19708/11 May/June 2007
5B19708/11 Oct/Nov 2007
6C19708/11 May/June 2008
7B19708/11 Oct/Nov 2008
8D19708/11 May/June 2009
9C19708/11 May/June 2010
10C19708/12 May/June 2010
11C19708/13 May/June 2010
12B19708/11 Oct/Nov 2010
13A19708/11 Oct/Nov 2010
14B19708/12 Oct/Nov 2010
15A19708/12 Oct/Nov 2010
16B19708/13 Oct/Nov 2010
17A19708/13 Oct/Nov 2010
18C19708/11 May/June 2011
19C19708/12 May/June 2011
20C19708/13 May/June 2011
21A19708/11 Oct/Nov 2011
22A19708/12 Oct/Nov 2011
23A19708/13 Oct/Nov 2011
24A19708/11 May/June 2012
25D19708/11 May/June 2012
26A19708/12 May/June 2012
27D19708/12 May/June 2012
28A19708/13 May/June 2012
29D19708/13 May/June 2012
30A19708/11 Oct/Nov 2012
31C19708/12 Oct/Nov 2012
32A19708/12 Oct/Nov 2012
33A19708/13 Oct/Nov 2012
34C19708/11 May/June 2013
35A19708/13 May/June 2013
36B19708/13 May/June 2013
37B19708/11 Oct/Nov 2013
38D19708/11 Oct/Nov 2013
39B19708/12 Oct/Nov 2013
40B19708/13 Oct/Nov 2013
41B19708/11 May/June 2014
42D19708/11 May/June 2014
43A19708/11 May/June 2014
44C19708/13 May/June 2014
45A19708/12 Oct/Nov 2014
46A19708/13 Oct/Nov 2014
47B19708/13 Oct/Nov 2014
48C19708/12 May/June 2015
49D19708/13 May/June 2015
50A19708/13 May/June 2015
51B19708/12 Oct/Nov 2015
52D19708/13 Oct/Nov 2015
53D19708/12 Feb/March 2016
54C19708/11 May/June 2016
55B19708/11 May/June 2016
56B19708/12 May/June 2016
57B19708/13 May/June 2016
58A19708/11 Oct/Nov 2016
59C19708/12 Oct/Nov 2016
60B19708/13 Oct/Nov 2016
61D19708/12 Feb/March 2017
62B19708/11 May/June 2017
63A19708/12 May/June 2017
64A19708/13 May/June 2017
65B19708/11 Oct/Nov 2017
66B19708/12 Oct/Nov 2017
67A19708/13 Oct/Nov 2017
68A19708/13 Oct/Nov 2017
69A19708/12 Feb/March 2018
70B19708/11 May/June 2018
71B19708/11 May/June 2018
72A19708/12 May/June 2018
73A19708/13 May/June 2018
74D19708/13 May/June 2018
75B19708/11 Oct/Nov 2018
76B19708/12 Oct/Nov 2018
77D19708/13 Oct/Nov 2018
78C19708/11 May/June 2019
79A19708/11 May/June 2019
80D19708/12 May/June 2019
81D19708/13 May/June 2019
82D19708/13 May/June 2019
83B19708/11 Oct/Nov 2019
84B19708/11 Oct/Nov 2019
85A19708/12 Oct/Nov 2019
86D19708/13 Oct/Nov 2019
87D19708/12 Feb/March 2020
88C19708/11 May/June 2020
89B19708/12 May/June 2020
90D19708/13 May/June 2020
91C19708/13 May/June 2020
92D19708/13 May/June 2020
93C19708/11 Oct/Nov 2020
94C19708/11 Oct/Nov 2020
95C19708/12 Oct/Nov 2020
96D19708/12 Oct/Nov 2020
97D19708/13 Oct/Nov 2020
98D19708/12 Feb/March 2021
99B19708/12 May/June 2021
100B19708/12 May/June 2021
101B19708/12 May/June 2021
102B19708/13 May/June 2021
103B19708/11 Oct/Nov 2021
104D19708/11 Oct/Nov 2021
105C19708/12 Oct/Nov 2021
106D19708/12 Feb/March 2022
107D19708/11 May/June 2022
108C19708/12 May/June 2022
109A19708/12 May/June 2022
110A19708/12 May/June 2022
111B19708/13 May/June 2022
112C19708/13 May/June 2022
113B19708/14 May/June 2022
114C19708/11 Oct/Nov 2022
115D19708/11 Oct/Nov 2022
116D19708/12 Oct/Nov 2022
117D19708/12 Feb/March 2023
118see sheet19708/11 May/June 2023
119C19708/12 May/June 2023
120B19708/13 May/June 2023
121A19708/13 May/June 2023
122D19708/12 Feb/March 2024
123A19708/12 May/June 2024
124D19708/13 May/June 2024
125B19708/11 Oct/Nov 2024
126C19708/12 Oct/Nov 2024
127A19708/13 Oct/Nov 2024
128D19708/11 May/June 2025
129D19708/12 May/June 2025
130D19708/11 Oct/Nov 2025

Another paper, or another topic

Paper
Paper 1130 questionsPaper 2questions comingPaper 313 questionsPaper 4questions coming

All of International economic issues (AS Level) →

Questions as text

Q1 · Which policy would be most likely to reduce a balance of payments current account deficit? 9708/11 Oct/Nov 2005

30 Which policy would be most likely to reduce a balance of payments current account deficit? A reducing income tax rates B reducing subsidies to domestic industries C reducing the external value of the currency D reducing the level of tariffs

1 marks

Answer: C

This question in 9708/11 Oct/Nov 2005

Q2 · In an attempt to correct a balance of trade deficit the government of Indonesia has… 9708/11 May/June 2006

30 In an attempt to correct a balance of trade deficit the government of Indonesia has decided to employ expenditure-dampening methods. Which policy would best fit this description? A introducing quotas on imported goods B raising income tax rates C subsidising home-produced goods D taxing imported goods

1 marks

Answer: B

This question in 9708/11 May/June 2006

Q3 · In which of the following circumstances will devaluation of the external value of a… 9708/11 Oct/Nov 2006

30 In which of the following circumstances will devaluation of the external value of a country’s currency have the greatest beneficial effects on its balance of trade? A There is full employment in the country. B The government has implemented expansionary fiscal policies. C The demand for its imports is price-inelastic. D There is a high price elasticity of demand for its exports.

1 marks

Answer: D

This question in 9708/11 Oct/Nov 2006

Q4 · A country with a freely floating exchange rate has a persistent deficit on the current… 9708/11 May/June 2007

30 A country with a freely floating exchange rate has a persistent deficit on the current account of its balance of payments. Which policy can be used to correct this disequilibrium? A devalue the currency B increase government spending C increase tax rates D reduce tariffs on imports

1 marks

Answer: C

This question in 9708/11 May/June 2007

Q5 · In a country the Marshall-Lerner condition for an improvement in the trade balance is… 9708/11 Oct/Nov 2007

28 In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports and exports are slow to respond to price changes. The government devalues its currency to reduce its trade deficit. Which curve indicates the probable behaviour of the trade balance? A B + trade C 0 balance – D time

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2007

Q6 · The table shows observations of the exchange rate of an economy and its current account… 9708/11 May/June 2008

29 The table shows observations of the exchange rate of an economy and its current account balance over six years. exchange rate current account balance year (US dollars per unit (billions of US dollars) of domestic currency) 1 2.0 –3 2 1.5 –5 3 1.5 –4 4 1.5 –3 5 1.5 0 6 1.5 +3 Which concept does the data in the table illustrate? A exchange rate appreciation B purchasing power parity C the J-curve effect D trade-weighted exchange rates

1 marks

Answer: C

This question in 9708/11 May/June 2008

Q7 · Which measure to correct a balance of payments current account deficit would be… 9708/11 Oct/Nov 2008

30 Which measure to correct a balance of payments current account deficit would be classified as an expenditure-dampening policy? A a reduction in interest rates B an increase in direct taxes C an introduction of foreign exchange controls D an upward revaluation of the currency

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2008

Q8 · A country has a large current account deficit 9708/11 May/June 2009

30 A country has a large current account deficit. Its government decides to devalue its currency. In which circumstance would such a measure reduce the deficit? price elasticity of price elasticity of demand for exports demand for imports A 0.0 0.0 B 0.0 0.5 C 0.5 0.5 D 0.5 1.0

1 marks

Answer: D

This question in 9708/11 May/June 2009

Q9 · When is a deficit on the current account of the balance of payments likely to worsen? 9708/11 May/June 2010

27 When is a deficit on the current account of the balance of payments likely to worsen? A when the government adopts a deflationary macroeconomic policy B when the government devalues the currency C when the prices of imported products that are demand-inelastic increase significantly D when tariffs are placed on imported products that are demand-elastic

1 marks

Answer: C

This question in 9708/11 May/June 2010

Q10 · When is a deficit on the current account of the balance of payments likely to worsen? 9708/12 May/June 2010

26 When is a deficit on the current account of the balance of payments likely to worsen? A when the government adopts a deflationary macroeconomic policy B when the government devalues the currency C when the prices of imported products that are demand-inelastic increase significantly D when tariffs are placed on imported products that are demand-elastic

1 marks

Answer: C

This question in 9708/12 May/June 2010

Q11 · When is a deficit on the current account of the balance of payments likely to worsen? 9708/13 May/June 2010

25 When is a deficit on the current account of the balance of payments likely to worsen? A when the government adopts a deflationary macroeconomic policy B when the government devalues the currency C when the prices of imported products that are demand-inelastic increase significantly D when tariffs are placed on imported products that are demand-elastic

1 marks

Answer: C

This question in 9708/13 May/June 2010

Q12 · In a country the Marshall-Lerner condition for an improvement in the trade balance is… 9708/11 Oct/Nov 2010

28 In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports and exports are slow to respond to price changes. The government devalues its currency to reduce its trade deficit. Which curve indicates the probable behaviour of the trade balance? A B + trade C 0 balance – D time

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2010

Q13 · In 2008 the Chinese government was under pressure from other countries to reduce its… 9708/11 Oct/Nov 2010

30 In 2008 the Chinese government was under pressure from other countries to reduce its current account surplus on its balance of payments. Which combination of Chinese measures would help to reduce China’s current account surplus? Chinese subsidies to Chinese rate of tariffs the country’s exporters A decrease decrease B decrease increase C increase decrease D increase increase

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2010

Q14 · In a country the Marshall-Lerner condition for an improvement in the trade balance is… 9708/12 Oct/Nov 2010

28 In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports and exports are slow to respond to price changes. The government devalues its currency to reduce its trade deficit. Which curve indicates the probable behaviour of the trade balance? A B + trade C 0 balance – D time

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2010

Q15 · In 2008 the Chinese government was under pressure from other countries to reduce its… 9708/12 Oct/Nov 2010

30 In 2008 the Chinese government was under pressure from other countries to reduce its current account surplus on its balance of payments. Which combination of Chinese measures would help to reduce China’s current account surplus? Chinese subsidies to Chinese rate of tariffs the country’s exporters A decrease decrease B decrease increase C increase decrease D increase increase

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2010

Q16 · In a country the Marshall-Lerner condition for an improvement in the trade balance is… 9708/13 Oct/Nov 2010

27 In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports and exports are slow to respond to price changes. The government devalues its currency to reduce its trade deficit. Which curve indicates the probable behaviour of the trade balance? A B + trade C 0 balance – D time

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2010

Q17 · In 2008 the Chinese government was under pressure from other countries to reduce its… 9708/13 Oct/Nov 2010

29 In 2008 the Chinese government was under pressure from other countries to reduce its current account surplus on its balance of payments. Which combination of Chinese measures would help to reduce China’s current account surplus? Chinese subsidies to Chinese rate of tariffs the country’s exporters A decrease decrease B decrease increase C increase decrease D increase increase

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2010

Q18 · The table shows observations of the exchange rate of an economy and its current account… 9708/11 May/June 2011

29 The table shows observations of the exchange rate of an economy and its current account balance over six years. exchange rate current account balance year (US dollars per unit (billions of US dollars) of domestic currency) 1 2.0 –3 2 1.5 –5 3 1.5 –4 4 1.5 –3 5 1.5 0 6 1.5 +3 Which concept does the data in the table illustrate? A exchange rate appreciation B purchasing power parity C the J-curve effect D trade-weighted exchange rates

1 marks

Answer: C

This question in 9708/11 May/June 2011

Q19 · The table shows observations of the exchange rate of an economy and its current account… 9708/12 May/June 2011

28 The table shows observations of the exchange rate of an economy and its current account balance over six years. exchange rate current account balance year (US dollars per unit (billions of US dollars) of domestic currency) 1 2.0 –3 2 1.5 –5 3 1.5 –4 4 1.5 –3 5 1.5 0 6 1.5 +3 Which concept does the data in the table illustrate? A exchange rate appreciation B purchasing power parity C the J-curve effect D trade-weighted exchange rates

1 marks

Answer: C

This question in 9708/12 May/June 2011

Q20 · The table shows observations of the exchange rate of an economy and its current account… 9708/13 May/June 2011

27 The table shows observations of the exchange rate of an economy and its current account balance over six years. exchange rate current account balance year (US dollars per unit (billions of US dollars) of domestic currency) 1 2.0 –3 2 1.5 –5 3 1.5 –4 4 1.5 –3 5 1.5 0 6 1.5 +3 Which concept does the data in the table illustrate? A exchange rate appreciation B purchasing power parity C the J-curve effect D trade-weighted exchange rates

1 marks

Answer: C

This question in 9708/13 May/June 2011

Q21 · A country at the beginning of a given period seeks to improve the current account of its… 9708/11 Oct/Nov 2011

30 A country at the beginning of a given period seeks to improve the current account of its balance of payments by devaluing its currency. The effect of this policy in the following two years is shown in the diagram. current account surplus current +_ 0 balance 6 12 18 24 deficit months Which statement is likely to explain this performance? A In the short run, the price elasticity of demand for exports and imports was very low. B The domestic inflation rate fell after 12 months before having the desired result. C The elasticity of demand for imports diminished after 12 months. D The policy was ineffective and other factors must have led to an improvement in the current account.

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2011

Q22 · When will a country’s balance of payments current account deficit be reduced? 9708/12 Oct/Nov 2011

30 When will a country’s balance of payments current account deficit be reduced? A when it raises its rate of income tax B when it reduces tariffs on its imports C when it revalues its currency D when it removes export subsidies

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2011

Q23 · A country at the beginning of a given period seeks to improve the current account of its… 9708/13 Oct/Nov 2011

28 A country at the beginning of a given period seeks to improve the current account of its balance of payments by devaluing its currency. The effect of this policy in the following two years is shown in the diagram. current account surplus current +_ 0 balance 6 12 18 24 deficit months Which statement is likely to explain this performance? A In the short run, the price elasticity of demand for exports and imports was very low. B The domestic inflation rate fell after 12 months before having the desired result. C The elasticity of demand for imports diminished after 12 months. D The policy was ineffective and other factors must have led to an improvement in the current account.

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2011

Q24 · A government decides to reduce the quota on imported cars from 2000 to 1000 per year 9708/11 May/June 2012

27 A government decides to reduce the quota on imported cars from 2000 to 1000 per year. What is likely to happen? A The balance of trade may improve. B The demand for the good will increase. C The good will become cheaper. D The government’s revenue will decline.

1 marks

Answer: A

This question in 9708/11 May/June 2012

Q25 · A country has a deficit on the current account of its balance of payments 9708/11 May/June 2012

30 A country has a deficit on the current account of its balance of payments. What might help the country to reduce its deficit? A a decrease in its rate of income tax B a decrease in its tariffs C an increase in its level of employment D an increase in its subsidies to exporters

1 marks

Answer: D

This question in 9708/11 May/June 2012

Q26 · A government decides to reduce the quota on imported cars from 2000 to 1000 per year 9708/12 May/June 2012

27 A government decides to reduce the quota on imported cars from 2000 to 1000 per year. What is likely to happen? A The balance of trade may improve. B The demand for the good will increase. C The good will become cheaper. D The government’s revenue will decline.

1 marks

Answer: A

This question in 9708/12 May/June 2012

Q27 · The currency of a country is fixed by the Central Bank at a certain value in terms of US… 9708/12 May/June 2012

30 The currency of a country is fixed by the Central Bank at a certain value in terms of US dollars. If currency devaluation is not possible, which policy might be used to reduce a current account deficit on the balance of payments? A a decrease in interest rates B a decrease in tax rates C a decrease in tariffs on imports D a decrease in public expenditure

1 marks

Answer: D

This question in 9708/12 May/June 2012

Q28 · Assuming that the supply of exports and imports are perfectly elastic, at which… 9708/13 May/June 2012

28 Assuming that the supply of exports and imports are perfectly elastic, at which combination of elasticities of demand for imports and exports would a 10 % fall in the value of a currency lead to a worsening of the trade account of a country’s balance of payments? elasticity of demand elasticity of demand for exports for imports A 0.5 0.25 B 0.5 0.5 C 1.0 0.75 D 1.0 1.0

1 marks

Answer: A

This question in 9708/13 May/June 2012

Q29 · A country has a deficit on the current account of its balance of payments 9708/13 May/June 2012

30 A country has a deficit on the current account of its balance of payments. What might help the country to reduce its deficit? A a decrease in its rate of income tax B a decrease in its tariffs C an increase in its level of employment D an increase in its subsidies to exporters

1 marks

Answer: D

This question in 9708/13 May/June 2012

Q30 · What is an example of an expenditure-dampening policy? 9708/11 Oct/Nov 2012

30 What is an example of an expenditure-dampening policy? A an increase in income tax rates B an increase in the level of import tariffs C an upward revaluation of the exchange rate D the introduction of import quotas

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2012

Q31 · A government believes that it can reduce its trade deficit by the introduction of a tax… 9708/12 Oct/Nov 2012

20 A government believes that it can reduce its trade deficit by the introduction of a tax on its main export. When is this likely to be most effective? A when demand for the export is price elastic B when the exporting country is a member of a customs union C when the exporting country is the major world supplier of the product D when the terms of trade of the exporting country are favourable

1 marks

Answer: C

This question in 9708/12 Oct/Nov 2012

Q32 · When is the imposition of a tariff on a good most likely to reduce a trade deficit? 9708/12 Oct/Nov 2012

30 When is the imposition of a tariff on a good most likely to reduce a trade deficit? A when the country has a potential comparative advantage in producing that good B when the country is a member of an economic union C when the elasticity of supply of the good domestically is zero D when the price elasticity of demand for the good is zero

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2012

Q33 · A country has a balance of payments disequilibrium with a long-run deficit on its current… 9708/13 Oct/Nov 2012

26 A country has a balance of payments disequilibrium with a long-run deficit on its current account. Which outcome of the disequilibrium will cause inflationary pressure? A the depreciation of the country’s exchange rate B the fall in the country’s reserves of international currencies C the increase in the demand for imports of goods and services D the introduction of expenditure-dampening policies by the government

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2012

Q34 · What is an expenditure-switching policy measure? 9708/11 May/June 2013

30 What is an expenditure-switching policy measure? A decreasing income tax B decreasing the money supply C devaluing the currency D increasing government spending

1 marks

Answer: C

This question in 9708/11 May/June 2013

Q35 · Which policy, adopted by a government with the intention of reducing the rate of… 9708/13 May/June 2013

28 Which policy, adopted by a government with the intention of reducing the rate of inflation, might cause a greater deficit on the balance of payments? A higher foreign exchange rates for its currency B higher interest rates for domestic customers C higher subsidies to domestic producers D higher tax rates on consumer incomes

1 marks

Answer: A

This question in 9708/13 May/June 2013

Q36 · What is likely to result in an increase in a country’s balance of payments deficit… 9708/13 May/June 2013

29 What is likely to result in an increase in a country’s balance of payments deficit (disequilibrium) in the short run but may reduce it in the long run? A an appreciation of the country’s currency B substantial foreign investment by the country’s residents C the introduction of controls on capital outflows D the introduction of import quotas

1 marks

Answer: B

This question in 9708/13 May/June 2013

Q37 · In a country the Marshall-Lerner condition for an improvement in the trade balance is… 9708/11 Oct/Nov 2013

29 In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports and exports are slow to respond to price changes. The government devalues its currency to reduce its trade deficit. Which curve indicates the probable behaviour of the trade balance? A B + trade C 0 balance – D time

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2013

Q38 · A country has a long running current account deficit on the balance of payments 9708/11 Oct/Nov 2013

30 A country has a long running current account deficit on the balance of payments. Its government was using an expenditure switching policy but decides to change to an expenditure reducing policy. What could have been the old policy and its new policy? old policy new policy A export subsidies quotas B income tax interest rate C quotas exchange rate control D tariffs income tax

1 marks

Answer: D

This question in 9708/11 Oct/Nov 2013

Q39 · An economy has a high level of unemployment and a large balance of payments deficit on… 9708/12 Oct/Nov 2013

30 An economy has a high level of unemployment and a large balance of payments deficit on the current account. What would be a suitable policy for the government to adopt? A decrease government spending B devalue the currency C increase direct taxation D increase interest rates

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2013

Q40 · What is most likely to immediately reduce the deficit on the current account of a… 9708/13 Oct/Nov 2013

30 What is most likely to immediately reduce the deficit on the current account of a country’s balance of payments? A a cut in its interest rates B a rise in its income tax rates C cuts in subsidies to domestic industry D purchases of its currency by its government

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2013

Q41 · What would most help a country to achieve a surplus on the current account of the balance… 9708/11 May/June 2014

27 What would most help a country to achieve a surplus on the current account of the balance of payments? A a depreciating exchange rate combined with a high rate of inflation and falling productivity B a depreciating exchange rate combined with a low rate of inflation and rising productivity C an appreciating exchange rate combined with a high rate of inflation and falling productivity D an appreciating exchange rate combined with a low rate of inflation and rising productivity

1 marks

Answer: B

This question in 9708/11 May/June 2014

Q42 · Devaluation always has the effect of A decreasing the price of imports 9708/11 May/June 2014

29 Devaluation always has the effect of A decreasing the price of imports. B decreasing the value of imports. C worsening the balance of payments. D worsening the terms of trade.

1 marks

Answer: D

This question in 9708/11 May/June 2014

Q43 · Policies to correct a balance of payments deficit fall into two categories… 9708/11 May/June 2014

30 Policies to correct a balance of payments deficit fall into two categories: expenditure-dampening policies and expenditure-switching policies. Which pair of policies in the table are classified correctly? expenditure-dampening expenditure-switching policy policy an increase in the the imposition of A rate of income tax import quotas an increase in the rate an increase in the B of value added tax rate of income tax devaluation of the an increase in the rate C currency of value added tax the imposition of devaluation of D import quotas the currency

1 marks

Answer: A

This question in 9708/11 May/June 2014

Q44 · The table shows observations of the exchange rate of an economy and its current account… 9708/13 May/June 2014

29 The table shows observations of the exchange rate of an economy and its current account balance over six years. exchange rate current account balance year (US dollars per unit (billions of US dollars) of domestic currency) 1 2.0 –3 2 1.5 –5 3 1.5 –4 4 1.5 –3 5 1.5 0 6 1.5 +3 Which concept does the data in the table illustrate? A exchange rate appreciation B purchasing power parity C the J-curve effect D trade-weighted exchange rates

1 marks

Answer: C

This question in 9708/13 May/June 2014

Q45 · To reduce a deficit on the current account of the balance of payments, a government… 9708/12 Oct/Nov 2014

30 To reduce a deficit on the current account of the balance of payments, a government imposes a limit on the foreign exchange its people and firms can purchase. Why may this increase the country’s inflation rate? A Firms may have to purchase more expensive, domestically-produced raw materials. B Firms may have to sell more of their output on the domestic market. C The change in demand for foreign currency on the foreign exchange market may lead to an appreciation in the exchange rate. D The change in supply of the domestic currency on the foreign exchange market may reduce the money supply in the domestic economy.

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2014

Q46 · Demand for imports is often price inelastic in the short term 9708/13 Oct/Nov 2014

28 Demand for imports is often price inelastic in the short term. Over time, demand tends to become more price elastic. What does this help to explain? A why a fall in the exchange rate causes a deficit on the current account of the balance of payments to increase before decreasing B why a fall in the exchange rate causes inflation to rise before falling C why a rise in the exchange rate causes a surplus on the current account of the balance of payments to decrease before increasing D why a rise in the exchange rate causes the terms of trade to worsen before improving

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2014

Q47 · An economy has a high rate of inflation and a balance of payments deficit 9708/13 Oct/Nov 2014

30 An economy has a high rate of inflation and a balance of payments deficit. Which policy change would help to reduce the balance of payments deficit without making inflation worse? A a devaluation of the currency B a reduction in government spending C the imposition of import quotas D the removal of import tariffs

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2014

Q48 · When is a deficit on the current account of the balance of payments likely to worsen? 9708/12 May/June 2015

26 When is a deficit on the current account of the balance of payments likely to worsen? A when a government adopts a deflationary macroeconomic policy B when a government devalues the currency C when prices of essential imported raw materials increase significantly D when tariffs are placed on imported products with a wide range of domestic substitutes

1 marks

Answer: C

This question in 9708/12 May/June 2015

Q49 · A government has low reserves of foreign currency 9708/13 May/June 2015

27 A government has low reserves of foreign currency. When would it be most likely to consider a deficit on current account to be a serious problem? A when the country is experiencing a period of high, sustained growth B when the deficit alternates regularly with a surplus C when the deficit exceeds the sum of errors and omissions in the balance of payments account D when the level of international confidence in the country is low

1 marks

Answer: D

This question in 9708/13 May/June 2015

Q50 · China had US$155 billion current account surplus in 2012 9708/13 May/June 2015

30 China had US$155 billion current account surplus in 2012. Which combination of policies might the Chinese Government use to restore equilibrium? A Decrease income tax and raise the value of the Chinese currency, the Yuan. B Increase income tax and lower the value of the Chinese currency, the Yuan. C Increase subsidies to Chinese firms and reduce income tax. D Increase tariffs on imports and increase income tax.

1 marks

Answer: A

This question in 9708/13 May/June 2015

Q51 · An economy with a fixed exchange rate experiences an increased deficit on the current… 9708/12 Oct/Nov 2015

28 An economy with a fixed exchange rate experiences an increased deficit on the current account of the balance of payments. What is most likely to increase as a consequence? A employment B interest rates C investment D national output

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2015

Q52 · A government devalues its exchange rate 9708/13 Oct/Nov 2015

30 A government devalues its exchange rate. What is most likely to be its aim? A to decrease a current account surplus B to decrease demand-pull inflation C to improve the terms of trade D to increase the level of employment

1 marks

Answer: D

This question in 9708/13 Oct/Nov 2015

Q53 · Possible policies a government might use to reduce a deficit on the current account of… 9708/12 Feb/March 2016

29 Possible policies a government might use to reduce a deficit on the current account of the balance of payments include devaluation, government spending cuts, interest rate rises and tariffs on imports. Which two policies would be classified as expenditure-switching? A devaluation and government spending cuts B government spending cuts and interest rate rises C interest rate rises and tariffs on imports D tariffs on imports and devaluation

1 marks

Answer: D

This question in 9708/12 Feb/March 2016

Q54 · Which policy measure is an expenditure-switching measure designed to reduce a current… 9708/11 May/June 2016

29 Which policy measure is an expenditure-switching measure designed to reduce a current account surplus? A a cut in income tax rates B a depreciation of the exchange rate C the removal of government subsidies to producers D the removal of limits on bank lending

1 marks

Answer: C

This question in 9708/11 May/June 2016

Q55 · A country faces twin problems of deflation and a current account deficit on the balance… 9708/11 May/June 2016

30 A country faces twin problems of deflation and a current account deficit on the balance of payments. It decides to run a budget deficit and to lower interest rates. Which effects are these measures likely to have on its twin problems? current deflation account deficit A improves uncertain B improves worsens C worsens uncertain D worsens worsens

1 marks

Answer: B

This question in 9708/11 May/June 2016

Q56 · Possible policies a government might use to reduce a deficit on the current account of… 9708/12 May/June 2016

29 Possible policies a government might use to reduce a deficit on the current account of the balance of payments include devaluation, government spending cuts, interest rate rises and tariffs. Which two policies would be classified as expenditure-reducing ? A devaluation and government spending cuts B government spending cuts and interest rate rises C interest rate rises and tariffs D tariffs and devaluation

1 marks

Answer: B

This question in 9708/12 May/June 2016

Q57 · In an attempt to correct a balance of trade deficit, the government of Indonesia has… 9708/13 May/June 2016

29 In an attempt to correct a balance of trade deficit, the government of Indonesia has decided to employ expenditure-dampening methods. Which policy would best fit this description? A introducing quotas on imported goods B raising income tax rates C subsidising home-produced goods D taxing imported goods

1 marks

Answer: B

This question in 9708/13 May/June 2016

Q58 · What would be the best policy for a country to reduce a balance of payments deficit? 9708/11 Oct/Nov 2016

29 What would be the best policy for a country to reduce a balance of payments deficit? A an increase in interest rates B an increase in the exchange rate C a reduction in direct taxes D a reduction in subsidies to domestic industry

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2016

Q59 · Which measure to correct a balance of payments current account deficit would be… 9708/12 Oct/Nov 2016

29 Which measure to correct a balance of payments current account deficit would be classified as an expenditure-dampening policy? A a reduction in interest rates B a revaluation of the currency C an increase in direct taxes D an introduction of foreign exchange controls

1 marks

Answer: C

This question in 9708/12 Oct/Nov 2016

Q60 · What is the most effective policy to correct a deficit on the current account of the… 9708/13 Oct/Nov 2016

29 What is the most effective policy to correct a deficit on the current account of the balance of payments? A appreciation of the currency B increased foreign exchange controls C reduced export subsidies D reduced subsidies in the home market

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2016

Q61 · A country has a large current account deficit 9708/12 Feb/March 2017

29 A country has a large current account deficit. Its government decides to devalue its currency. In which circumstance would such a measure reduce the deficit? price elasticity of price elasticity of demand for exports demand for imports A 0.0 0.0 B 0.0 0.5 C 0.5 0.5 D 0.5 1.0

1 marks

Answer: D

This question in 9708/12 Feb/March 2017

Q62 · A country with a fixed exchange rate has a current account surplus on its balance of… 9708/11 May/June 2017

29 A country with a fixed exchange rate has a current account surplus on its balance of payments. What is most likely to reduce this surplus? A higher interest rates B higher investment spending C higher tariffs D higher taxes

1 marks

Answer: B

This question in 9708/11 May/June 2017

Q63 · What is an example of an expenditure-dampening policy? 9708/12 May/June 2017

29 What is an example of an expenditure-dampening policy? A an increase in income tax rates B an increase in the level of import tariffs C an upward revaluation of the exchange rate D the introduction of import quotas

1 marks

Answer: A

This question in 9708/12 May/June 2017

Q64 · Policies to correct a balance of payments deficit fall into two categories… 9708/13 May/June 2017

29 Policies to correct a balance of payments deficit fall into two categories: expenditure-dampening policies and expenditure-switching policies. Which pair of policies are classified correctly? expenditure-dampening policy expenditure-switching policy A an increase in the rate devaluation of of income tax the currency B an increase in the rate the imposition of of value added tax import quotas C devaluation of an increase in the rate the currency of value added tax D the imposition of an increase in the import quotas rate of income tax

1 marks

Answer: A

This question in 9708/13 May/June 2017

Q65 · If an economy has a floating exchange rate, which policy could have an expansionary… 9708/11 Oct/Nov 2017

29 If an economy has a floating exchange rate, which policy could have an expansionary effect on national income with the smallest reduction of a current account surplus on the balance of payments? A a reduction in income tax rates B a reduction in interest rates C government subsidies to individuals wanting loans for house purchases D increased government spending on transport infrastructure

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2017

Q66 · When will a country’s balance of payments current account deficit be reduced? 9708/12 Oct/Nov 2017

29 When will a country’s balance of payments current account deficit be reduced? A when it lowers tariffs on its imports B when it raises its rate of income tax C when it removes export subsidies D when it revalues its currency

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2017

Q67 · A country at the beginning of a given period seeks to improve the current account of its… 9708/13 Oct/Nov 2017

29 A country at the beginning of a given period seeks to improve the current account of its balance of payments by devaluing its currency. The effect of this policy in the following two years is shown in the diagram. current account surplus current + 0 balance – 6 12 18 24 deficit months Which statement is likely to explain this performance? A In the short run, the price elasticity of demand for exports and imports was very low. B The domestic inflation rate fell after 12 months before having the desired result. C The elasticity of demand for imports diminished after 12 months. D The policy was ineffective and other factors must have led to an improvement in the current account.

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2017

Q68 · Suppose a country has a rate of inflation well below its target rate, high unemployment… 9708/13 Oct/Nov 2017

30 Suppose a country has a rate of inflation well below its target rate, high unemployment and a large balance of payments deficit. What would an economic advisor to the government be most likely to recommend? A a long-run supply side policy, aimed at improving the country’s efficiency, so improving both the unemployment and the balance of payments positions B a revaluation of its currency, because that would lead to reduced unemployment and an improved balance of payments C a rise in interest rates, because it would lead to an improved balance of payments and help achieve the inflation target D a rise in levels of direct taxation, because that would improve unemployment and move inflation in the direction of a target level

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2017

Q69 · A country has a deficit on the current account of the balance of payments 9708/12 Feb/March 2018

29 A country has a deficit on the current account of the balance of payments. Which policy would be expected to increase the deficit? A an appreciation of the exchange rate B an increase in domestic productivity C an introduction of import quotas D a rise in subsidies to domestic firms

1 marks

Answer: A

This question in 9708/12 Feb/March 2018

Q70 · The demand for a country’s exports is price-elastic 9708/11 May/June 2018

27 The demand for a country’s exports is price-elastic. What will be the effect of introducing export subsidies on its balance of trade and on its terms of trade? balance of trade terms of trade A improve improve B improve worsen C worsen improve D worsen worsen

1 marks

Answer: B

This question in 9708/11 May/June 2018

Q71 · Which policy is not likely to help reduce a balance of payments deficit? 9708/11 May/June 2018

29 Which policy is not likely to help reduce a balance of payments deficit? A an increase in expenditure promoting locally produced goods B an increase in the quota on cheap imports C an increase in the restrictions on foreign exchange D an increase in the subsidies to exporting industries

1 marks

Answer: B

This question in 9708/11 May/June 2018

Q72 · China had a US$155 billion current account surplus in 2012 9708/12 May/June 2018

29 China had a US$155 billion current account surplus in 2012. Which combination of policies might the Chinese Government use to reduce the surplus? A decrease income tax and raise the value of the Chinese currency, the Yuan B increase income tax and lower the value of the Chinese currency, the Yuan C increase subsidies to Chinese firms and reduce income tax D increase tariffs on imports and increase income tax

1 marks

Answer: A

This question in 9708/12 May/June 2018

Q73 · To what does the J curve effect directly relate? 9708/13 May/June 2018

23 To what does the J curve effect directly relate? A balance of payment effects caused by exchange rate changes B exchange rate effects caused by balance of payment changes C import expenditure effects caused by tariff changes D trade creation effects caused by comparative advantage changes

1 marks

Answer: A

This question in 9708/13 May/June 2018

Q74 · If an economy experiences a persistent balance of trade deficit, it may choose to place… 9708/13 May/June 2018

29 If an economy experiences a persistent balance of trade deficit, it may choose to place tariffs on imports of manufactured goods. When might the use of tariffs solve a balance of trade deficit in the long term? A when an economy imports a sustainable amount of raw materials B when an economy is experiencing a high rate of inflation C when the demand for imports is inelastic D when the supply of domestically produced goods is elastic

1 marks

Answer: D

This question in 9708/13 May/June 2018

Q75 · Which policy is most likely to help to correct an adverse balance on the current account… 9708/11 Oct/Nov 2018

29 Which policy is most likely to help to correct an adverse balance on the current account of the balance of payments? A abolishing tariffs B devaluing the currency C reducing direct taxes D reducing indirect taxes

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2018

Q76 · In a country the Marshall-Lerner condition for an improvement in the trade balance is… 9708/12 Oct/Nov 2018

29 In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports and exports are slow to respond to price changes. The government devalues its currency to reduce its trade deficit. Which curve indicates the probable behaviour of the trade balance? A trade B balance + 0 C – D time

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2018

Q77 · A country has a long-running current account deficit on the balance of payments 9708/13 Oct/Nov 2018

29 A country has a long-running current account deficit on the balance of payments. Its government was using an expenditure-switching policy but decides to change to an expenditure-reducing policy. What could have been the old policy and its new policy? old policy new policy A export subsidies quotas B income tax interest rate C quotas exchange rate control D tariffs income tax

1 marks

Answer: D

This question in 9708/13 Oct/Nov 2018

Q78 · What does the Marshall-Lerner condition state must be present for a depreciation of a… 9708/11 May/June 2019

27 What does the Marshall-Lerner condition state must be present for a depreciation of a currency to cause an improvement in the current account balance? A The price elasticity of demand for exports and the price elasticity of demand for imports are both greater than one. B The price elasticity of demand for exports and the price elasticity of demand for imports are both less than one. C The sum of the price elasticity of demand for exports and the price elasticity of demand for imports is greater than one. D The sum of the price elasticity of demand for exports and the price elasticity of demand for imports is less than one.

1 marks

Answer: C

This question in 9708/11 May/June 2019

Q79 · A country with low unemployment and a managed floating exchange rate has a persistent… 9708/11 May/June 2019

30 A country with low unemployment and a managed floating exchange rate has a persistent current account deficit on its balance of payments. Which policy to reduce this deficit is most likely to keep unemployment low, but cause inflation? A depreciating its currency B higher direct taxation C higher import tariffs D higher interest rates

1 marks

Answer: A

This question in 9708/11 May/June 2019

Q80 · A country with a balance of trade deficit raises interest rates 9708/12 May/June 2019

28 A country with a balance of trade deficit raises interest rates. How may this help to reduce the deficit in the short run? A by increasing the inflow of foreign direct investment B by lowering the foreign exchange rate C by raising the level of domestic capital investment D by reducing the level of domestic aggregate demand

1 marks

Answer: D

This question in 9708/12 May/June 2019

Q81 · A country devalues its currency in the expectation that a deficit on the current account… 9708/13 May/June 2019

20 A country devalues its currency in the expectation that a deficit on the current account of the balance of payments will be reduced. What is necessary to make this happen? A any tariff on imports must be matched by a subsidy on goods to be exported B the elasticity of demand for imports and the elasticity of demand for exports must both be greater than 1 C the rate of domestic inflation is equal to the rate of inflation in the foreign market D the sum of the elasticities of demand for domestic imports and the foreign demand for exports is greater than 1

1 marks

Answer: D

This question in 9708/13 May/June 2019

Q82 · A country’s balance of payments current account is in deficit 9708/13 May/June 2019

28 A country’s balance of payments current account is in deficit. How can this be restored to equilibrium, assuming the Marshall-Lerner condition holds? A increase the exchange rate B reduce income tax C reduce primary income D subsidise domestic producers

1 marks

Answer: D

This question in 9708/13 May/June 2019

Q83 · An economy changes its exchange rate at time T 9708/11 Oct/Nov 2019

25 An economy changes its exchange rate at time T. balance of trade surplus + T 0 time balance of trade deficit – What does the J-curve diagram show happens at T and after T? exchange rate Marshall-Lerner change at time T condition A devaluation does not apply B devaluation applies C revaluation does not apply D revaluation applies

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2019

Q84 · An economy has a balance of payments surplus, which it wishes to eliminate 9708/11 Oct/Nov 2019

28 An economy has a balance of payments surplus, which it wishes to eliminate. In order to achieve this objective, which combination of polices would be most appropriate? A a depreciation of the currency and an increase in government spending B an appreciation of the currency and a cut in interest rates C an increase in the money supply and a pay freeze D increases in both direct and indirect taxation

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2019

Q85 · Which policy would assist in reducing a deficit within the balance of payments? 9708/12 Oct/Nov 2019

28 Which policy would assist in reducing a deficit within the balance of payments? A increasing interest rates B increasing the money supply C reducing subsidies to exporting industries D reducing the level of direct taxation

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2019

Q86 · Under which conditions will an appreciation of a floating exchange rate cause the current… 9708/13 Oct/Nov 2019

27 Under which conditions will an appreciation of a floating exchange rate cause the current account of the balance of payments to worsen the most? price elasticity of price elasticity of demand for imports demand for exports A 0.4 0.4 B 0.4 0.6 C 0.6 0.4 D 0.6 0.6

1 marks

Answer: D

This question in 9708/13 Oct/Nov 2019

Q87 · A country with a fixed exchange rate and a deficit in the current account of its balance… 9708/12 Feb/March 2020

28 A country with a fixed exchange rate and a deficit in the current account of its balance of payments enters a recession. It devalues its currency in an effort to correct its balance of payments. Under which conditions is the deficit most likely to improve? price elasticity of price elasticity of income elasticity of demand for imports demand for exports demand for imports A 0.3 0.5 0.8 B 0.4 0.8 0.8 C 0.3 0.5 1.2 D 0.4 0.8 1.2

1 marks

Answer: D

This question in 9708/12 Feb/March 2020

Q88 · What is an expenditure-switching policy to reduce a country’s balance of payments deficit? 9708/11 May/June 2020

25 What is an expenditure-switching policy to reduce a country’s balance of payments deficit? A an increase in budget surplus B an increase in direct taxes C an increase in import tariffs D an increase in interest rates

1 marks

Answer: C

This question in 9708/11 May/June 2020

Q89 · In 2018 the United States (US) government introduced tariffs on a wide range of imports… 9708/12 May/June 2020

29 In 2018 the United States (US) government introduced tariffs on a wide range of imports from China. Which type of policy was the US government adopting? A expenditure-reducing B expenditure-switching C monetary D supply-side

1 marks

Answer: B

This question in 9708/12 May/June 2020

Q90 · A government decides to devalue the country’s currency to remove the deficit on its… 9708/13 May/June 2020

20 A government decides to devalue the country’s currency to remove the deficit on its current account of the balance of payments. What is the most likely reason why this would not work? A The country gains a competitive advantage from the devaluation. B The country has a surplus on its capital and financial accounts. C The price elasticities of demand for the country’s exports and imports are greater than one. D There are high trade barriers with the country’s main trading partners.

1 marks

Answer: D

This question in 9708/13 May/June 2020

Q91 · Why is a balance of payments deficit a potential problem for an economy with a fixed… 9708/13 May/June 2020

27 Why is a balance of payments deficit a potential problem for an economy with a fixed exchange rate? A Domestic money supply will increase. B Rival economies may react with trade protection measures. C The economy’s foreign exchange reserves may decrease. D The economy’s short-run standard of living will be reduced.

1 marks

Answer: C

This question in 9708/13 May/June 2020

Q92 · Which policy measure is an expenditure-switching measure designed to reduce a current… 9708/13 May/June 2020

30 Which policy measure is an expenditure-switching measure designed to reduce a current account surplus? A a cut in income tax rates B a depreciation of the exchange rate C the removal of limits on bank lending D the removal of subsidies to exporters

1 marks

Answer: D

This question in 9708/13 May/June 2020

Q93 · A country has a deficit of $300 million on the current account of its balance of payments 9708/11 Oct/Nov 2020

23 A country has a deficit of $300 million on the current account of its balance of payments. It devalues its currency in an attempt to reduce the deficit. Which row is consistent with the idea that the J-curve operates in the short run but the Marshall-Lerner condition is satisfied in the long run? short-run deficit long-run deficit ($ million) ($ million) A 200 100 B 200 400 C 600 100 D 600 400

1 marks

Answer: C

This question in 9708/11 Oct/Nov 2020

Q94 · When is a deficit on the current account of the balance of payments likely to worsen? 9708/11 Oct/Nov 2020

26 When is a deficit on the current account of the balance of payments likely to worsen? A when a government adopts a deflationary macroeconomic policy B when a government subsidises exports C when prices of essential imported raw materials increase significantly D when tariffs are placed on imported products with a wide range of domestic substitutes

1 marks

Answer: C

This question in 9708/11 Oct/Nov 2020

Q95 · A country has a balance of payments deficit 9708/12 Oct/Nov 2020

24 A country has a balance of payments deficit. It devalues its currency. Which combination leads to a reduction in its balance of payments deficit in the long run? price elasticity of price elasticity of demand for exports demand for imports A less than 0.5 less than 0.5 B less than 1 zero (0) C more than 0.5 more than 0.5 D zero (0) less than 1

1 marks

Answer: C

This question in 9708/12 Oct/Nov 2020

Q96 · Devaluation always has the effect of A decreasing the price of imports 9708/12 Oct/Nov 2020

27 Devaluation always has the effect of A decreasing the price of imports. B decreasing the value of imports. C worsening the balance of payments. D worsening the terms of trade.

1 marks

Answer: D

This question in 9708/12 Oct/Nov 2020

Q97 · A country has a persistent balance of payments deficit 9708/13 Oct/Nov 2020

26 A country has a persistent balance of payments deficit. What is most likely to improve the situation in the long run? A a lowering of the level of import duties B a reduction in the level of income tax C the introduction of expansionary monetary policy D the use of grants to encourage new investment by firms

1 marks

Answer: D

This question in 9708/13 Oct/Nov 2020

Q98 · A country has a deficit on the current account of its balance of payments 9708/12 Feb/March 2021

23 A country has a deficit on the current account of its balance of payments. What might help the country to reduce its deficit? A a decrease in its rate of income tax B a decrease in its tariffs C an increase in its level of employment D an increase in its subsidies to exporters

1 marks

Answer: D

This question in 9708/12 Feb/March 2021

Q99 · A government devalues its fixed exchange rate 9708/12 May/June 2021

20 A government devalues its fixed exchange rate. What is most likely to be its aim? A to improve the terms of trade B to increase the level of aggregate demand C to reduce a current account surplus D to reduce demand-pull inflation

1 marks

Answer: B

This question in 9708/12 May/June 2021

Q100 · As part of its trade policy, a government subsidises the cost of machinery used to… 9708/12 May/June 2021

21 As part of its trade policy, a government subsidises the cost of machinery used to manufacture goods for export. How will this affect the balance of payments? A decrease the deficit on the capital account B decrease the deficit on the current account C increase the deficit on the capital account D increase the deficit on the current account

1 marks

Answer: B

This question in 9708/12 May/June 2021

Q101 · Which policy aimed at correcting a balance of trade deficit is an expenditure-reducing… 9708/12 May/June 2021

29 Which policy aimed at correcting a balance of trade deficit is an expenditure-reducing policy? A depreciation of the currency B increased direct taxation C tax incentives for exporters D the imposition of protectionist tariffs

1 marks

Answer: B

This question in 9708/12 May/June 2021

Q102 · A country has a balance of trade deficit 9708/13 May/June 2021

25 A country has a balance of trade deficit. When will this be least likely to be improved as a result of a depreciation of its currency? A if it is currently operating with a significant amount of unused resources B if the sum of the price elasticities of demand for exports and imports is less than 1 C if in the long term, the price elasticity of demand for exports should increase D if the country uses a relatively small proportion of imports in their production process

1 marks

Answer: B

This question in 9708/13 May/June 2021

Q103 · An economy experiences a deficit on the current account of its balance of payments 9708/11 Oct/Nov 2021

24 An economy experiences a deficit on the current account of its balance of payments. What could the economy do to finance this deficit? A adopt a fixed exchange rate B attract more foreign direct investment C decrease income tax rates D lower the rate of interest

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2021

Q104 · The balance of payments on the current account for Guatemala in 2011 was –US$1.6 bn and… 9708/11 Oct/Nov 2021

29 The balance of payments on the current account for Guatemala in 2011 was –US$1.6 bn and in 2016 was +US$1.0 bn. What is most likely to have been a contributory factor to this change in the balance of payments on the current account over this five-year period? A an appreciation of Guatemala’s currency B a growth of household incomes in Guatemala C a lowering of tariffs on goods imported into Guatemala D productivity improvements in Guatemala’s export sector

1 marks

Answer: D

This question in 9708/11 Oct/Nov 2021

Q105 · Which condition is necessary for a country’s balance of payments on its current account… 9708/12 Oct/Nov 2021

26 Which condition is necessary for a country’s balance of payments on its current account to improve if it reduced its exchange rate? A Both the price elasticities of supply for its imports and its exports must be elastic. B The importing country will buy all the excess supplies of its trading partner to clear the market. C The sum of the price elasticities of domestic demand for imports and the foreign demand for exports must be greater than one. D The trading partners need to agree on the maximum prices to be charged for imports and exports.

1 marks

Answer: C

This question in 9708/12 Oct/Nov 2021

Q106 · ‘Reducing the exchange rate helps to decrease a country’s balance of payments deficit… 9708/12 Feb/March 2022

28 ‘Reducing the exchange rate helps to decrease a country’s balance of payments deficit because it makes imports more expensive and exports cheaper.’ What does this statement describe? A a deflationary policy B a policy of direct controls C an expenditure-reducing policy D an expenditure-switching policy

1 marks

Answer: D

This question in 9708/12 Feb/March 2022

Q107 · The government of a country is worried about a large deficit on the current account of… 9708/11 May/June 2022

30 The government of a country is worried about a large deficit on the current account of its balance of payments and an increasing rate of inflation. The country has a fixed exchange rate for its currency. Which policy measure is most likely to help the government to reduce the current account deficit and lower the rate of inflation? A devaluation of the currency B increasing government spending C decreasing the direct taxes D increasing the interest rate

1 marks

Answer: D

This question in 9708/11 May/June 2022

Q108 · A country operates a fixed exchange rate system 9708/12 May/June 2022

23 A country operates a fixed exchange rate system. What will put pressure on the country to devalue its currency? A a decrease in the country’s inflation rate relative to the inflation rates of other countries B a decrease in the tariffs on its products imposed by other countries C an increase in its current account balance of payments deficit with other countries D an increase in the country’s interest rate relative to the interest rates of other countries

1 marks

Answer: C

This question in 9708/12 May/June 2022

Q109 · The table gives different combinations of possible values for a country’s price… 9708/12 May/June 2022

24 The table gives different combinations of possible values for a country’s price elasticity of demand for exports and price elasticity of demand for its imports. Following the devaluation of the country’s currency, under which combination of elasticities would the country’s balance of payments on the current account worsen? price elasticity of price elasticity of demand for exports demand for imports A 0.3 0.3 B 0.2 0.9 C 0.6 0.5 D 1.2 1.2

1 marks

Answer: A

This question in 9708/12 May/June 2022

Q110 · A country with low unemployment and a managed floating exchange rate has a persistent… 9708/12 May/June 2022

30 A country with low unemployment and a managed floating exchange rate has a persistent current account deficit on its balance of payments. Which policy to reduce this deficit is most likely to keep unemployment low, but cause inflation? A depreciating its currency B higher direct taxation C higher import tariffs D higher interest rates

1 marks

Answer: A

This question in 9708/12 May/June 2022

Q111 · The diagram shows the aggregate demand (AD) and aggregate supply (AS) for a country 9708/13 May/June 2022

26 The diagram shows the aggregate demand (AD) and aggregate supply (AS) for a country. The initial equilibrium is at point E. The sum of the price elasticities of demand for imports and exports for this country exceeds one. A devaluation of the country’s exchange rate will cause aggregate demand to change. What will be the new equilibrium? AS price level A B E D C AD O real output

1 marks

Answer: B

This question in 9708/13 May/June 2022

Q112 · Which measure to correct a balance of payments current account deficit would be… 9708/13 May/June 2022

28 Which measure to correct a balance of payments current account deficit would be classified as an expenditure-reducing policy? A a reduction in interest rates B a revaluation of the currency C an increase in direct taxes D an introduction of foreign exchange controls

1 marks

Answer: C

This question in 9708/13 May/June 2022

Q113 · An economy has a balance of payments surplus, which it wishes to eliminate 9708/14 May/June 2022

28 An economy has a balance of payments surplus, which it wishes to eliminate. In order to achieve this objective, which combination of policies would be most appropriate? A a depreciation of the currency and an increase in government spending B an appreciation of the currency and a cut in interest rates C an increase in the money supply and a pay freeze D increases in both direct and indirect taxation

1 marks

Answer: B

This question in 9708/14 May/June 2022

Q114 · What does the Marshall–Lerner condition state must be present for a depreciation of a… 9708/11 Oct/Nov 2022

27 What does the Marshall–Lerner condition state must be present for a depreciation of a currency to cause an improvement in the current account balance? A The price elasticity of demand for exports and the price elasticity of demand for imports are both greater than one. B The price elasticity of demand for exports and the price elasticity of demand for imports are both less than one. C The sum of the price elasticity of demand for exports and the price elasticity of demand for imports is greater than one. D The sum of the price elasticity of demand for exports and the price elasticity of demand for imports is less than one.

1 marks

Answer: C

This question in 9708/11 Oct/Nov 2022

Q115 · Raising interest rates is proposed to reduce a balance of payments deficit 9708/11 Oct/Nov 2022

29 Raising interest rates is proposed to reduce a balance of payments deficit. Which justification for this action is not valid? A It will attract more foreign currency inflows. B It will encourage exporters to find new foreign markets. C It will lower the level of imported consumer goods. D It will put downward pressure on the exchange rate.

1 marks

Answer: D

This question in 9708/11 Oct/Nov 2022

Q116 · Which government policy is most likely to cause expenditure switching that will benefit a… 9708/12 Oct/Nov 2022

28 Which government policy is most likely to cause expenditure switching that will benefit a country’s current account? A increasing import quotas B increasing income tax allowances C increasing spending on unemployment benefits D increasing subsidies to domestic firms

1 marks

Answer: D

This question in 9708/12 Oct/Nov 2022

Q117 · A government raises interest rates to improve the current account of the balance of… 9708/12 Feb/March 2023

30 A government raises interest rates to improve the current account of the balance of payments. What might reduce the effectiveness of this policy? A a fall in domestic growth B consumer pessimism C increased domestic saving D price-elastic demand for exports

1 marks

Answer: D

This question in 9708/12 Feb/March 2023

Q118 · A government orders its central bank to buy its domestic currency on the foreign exchange… 9708/11 May/June 2023

30 A government orders its central bank to buy its domestic currency on the foreign exchange markets in the belief that this will improve the balance of payments. What does this suggest? A Demand for the country’s exports is price inelastic. B The country’s Marshall–Lerner condition is greater than 1. C The government has a budget deficit. D The overall balance of payments is in surplus.

1 marks

This question in 9708/11 May/June 2023

Q119 · Which combination of policies would be most effective in reducing a balance of payments… 9708/12 May/June 2023

23 Which combination of policies would be most effective in reducing a balance of payments current account surplus? a decrease in a devaluation of the an expansionary tariffs on imports exchange rate monetary policy A no yes no B no no yes C yes no yes D yes yes no

1 marks

Answer: C

This question in 9708/12 May/June 2023

Q120 · Which policy is most likely to help to correct an adverse balance on the current account… 9708/13 May/June 2023

19 Which policy is most likely to help to correct an adverse balance on the current account of the balance of payments? A abolishing tariffs B depreciating the currency C reducing direct taxes D reducing indirect taxes

1 marks

Answer: B

This question in 9708/13 May/June 2023

Q121 · A country had a current account surplus of $141bn 9708/13 May/June 2023

27 A country had a current account surplus of $141bn. Which policy may its government implement to reduce this surplus in the short run? A a decrease in direct taxes B a decrease in regulations to encourage more foreign firms to locate in this country C an increase of import duties D an increase in interest rates

1 marks

Answer: A

This question in 9708/13 May/June 2023

Q122 · A government decides to allow the country’s currency to depreciate to remove the deficit… 9708/12 Feb/March 2024

25 A government decides to allow the country’s currency to depreciate to remove the deficit on its current account of the balance of payments. What is the most likely reason why this would not work? A The country gains a competitive advantage from the depreciation. B The country has a surplus on its capital and financial accounts. C The price elasticities of demand for the country’s exports and imports are greater than one. D There are high trade barriers with the country’s main trading partners.

1 marks

Answer: D

This question in 9708/12 Feb/March 2024

Q123 · What would be the best policy for a country to reduce a balance of payments deficit? 9708/12 May/June 2024

24 What would be the best policy for a country to reduce a balance of payments deficit? A an increase in interest rates B an increase in the exchange rate C a reduction in direct taxes D a reduction in subsidies to domestic industry

1 marks

Answer: A

This question in 9708/12 May/June 2024

Q124 · The demand for a country’s exports is price elastic 9708/13 May/June 2024

24 The demand for a country’s exports is price elastic. If it is experiencing a deficit on the current account of its balance of payments, which combination of policies is most likely to correct the deficit? standard rate of rate of interest exchange rate income tax A decrease appreciate keep unchanged B decrease depreciate decrease C increase keep unchanged decrease D keep unchanged depreciate increase

1 marks

Answer: D

This question in 9708/13 May/June 2024

Q125 · A government subsidises training to improve the skills of workers in the industrial… 9708/11 Oct/Nov 2024

25 A government subsidises training to improve the skills of workers in the industrial sector of an economy. What is the most likely effect on the current account of the balance of payments? A exports fall B exports rise C imports fall D imports rise

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2024

Q126 · Which policy is most likely to reduce a balance of payments deficit without causing… 9708/12 Oct/Nov 2024

26 Which policy is most likely to reduce a balance of payments deficit without causing inflation? A decreased import quotas B depreciation of currency C higher interest rates D decreased import tariffs

1 marks

Answer: C

This question in 9708/12 Oct/Nov 2024

Q127 · What is not a valid explanation of why a government might allow a deficit on the balance… 9708/13 Oct/Nov 2024

25 What is not a valid explanation of why a government might allow a deficit on the balance of payments current account to continue? A The balance of payments account must always balance. B Foreign direct investment might help to finance the deficit. C The country may have a larger surplus on the other parts of its balance of payments account. D The standard of living is increased if the level of cheap food imports is significant.

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2024

Q128 · A country has a persistent deficit on the current account of its balance of payments 9708/11 May/June 2025

28 A country has a persistent deficit on the current account of its balance of payments. What is most likely to improve the situation in the long run? A a lowering of the level of import duties B a reduction in the level of income tax C the introduction of expansionary monetary policy D the use of grants to encourage new investment by firms

1 marks

Answer: D

This question in 9708/11 May/June 2025

Q129 · A country is experiencing a deficit on the current account of its balance of payments 9708/12 May/June 2025

29 A country is experiencing a deficit on the current account of its balance of payments. Which policy decision could reduce the deficit? A decrease in income tax rates B increase in exchange rates C increase in government spending D increase in import tariffs

1 marks

Answer: D

This question in 9708/12 May/June 2025

Q130 · A country has a current account deficit on its balance of payments 9708/11 Oct/Nov 2025

30 A country has a current account deficit on its balance of payments. The government also has a budget deficit. Which measure to reduce the current account deficit will increase the budget deficit? A depreciating the exchange rate B introducing quotas on imports C raising tariffs on imports D subsidising exports

1 marks

Answer: D

This question in 9708/11 Oct/Nov 2025