Choose the correct answer for each question.

1. The current account of the balance of payments of a country is most likely to benefit from a depreciation of its currency when it is experiencing

   1.   ?    High interest rates
   2.   ?    Structural unemployment
   3.   ?    A price elasticity of demand for imports greater than one
   4.   ?    Price inelastic demand for its exports

2. A government wishing to reduce a deficit on the current account of ther balance of payments through the use of fiscal policy would be most likely to

   1.   ?    Raise interest rates
   2.   ?    Introduce an import quota
   3.   ?    Raise direct taxation
   4.   ?    Reduce the rate of value added tax on all goods and services

3. Which one of the following would be a supply-side measure designed to improve the international competitiveness of domestic producers in world markets?

   1.   ?    An increase in corporation tax
   2.   ?    An import tariff
   3.   ?    An increase in interest rates
   4.   ?    An increase in capital investment tax allowances

4. 
   One possible cause of the change in import penetration in the UK textile industry shown in the diagram above would be

   1.   ?    A rise in the relative unit labour costs of UK textile producers
   2.   ?    A substantial fall in the sterling exchange rate
   3.   ?    An increase in import tariffs on British textile exports overseas
   4.   ?    A fall in the general level of prices in Britain relative to prices in other countries

5. 
   From the data we can conclude that

   1.   ?    Import penetration increased in each industry shown between 1994-1999
   2.   ?    Britain exported fewer leather goods than it imported
   3.   ?    In 1999, over half of domestic sales of leather goods were imported
   4.   ?    The Machine and Precision Equipment industry experienced a recession between 1994 and 1999

6. Which one of the following would appear as a credit item in the UK balance of payments?

   1.   ?    The purchase by a French company of a UK insurance business
   2.   ?    Money sent by UK residents to their relatives living overseas
   3.   ?    Expenditure by the British Government in maintaining foreign embassies overseas
   4.   ?    The expenditure of Japanese tourists on holiday in Britain

7. 
   With reference to the data it can be inferred that

   1.   ?    The balance of trade in goods must have been in deficit during the period 1990-2001
   2.   ?    The UK economy has a comparative advantage in services
   3.   ?    The UK economy runs a trade surplus in travel and tourism
   4.   ?    There must have been an overall surplus on the balance of payments for each of the years shown

8. A foreign firm builds a subsidiary factor in Britain to produce goods solely for the British market. Assuming that this subsidiary is profitable, the impact on the UK's balance of payments is likely to be

   1.   ?    A current account credit item following by a stream of current account debit items
   2.   ?    A current account credit item following by a stream of capital account debit items
   3.   ?    A capital credit item following by a stream of current account debit items
   4.   ?    A capital credit item following by a stream of capital account debit items

9. Which one of the following is a debit item on the current account of the UK's Balance of Payments?

   1.   ?    Foreign tourists spending money in London
   2.   ?    Sales of Sky television programmes to the United States
   3.   ?    Exports from UK ports transported on UK merchant ships
   4.   ?    The costs of supporting UK armed forces in overseas countries

10. A government may seek to improve the current account of the balance of payments by introducing either expenditure-reducing or expenditure-switching policies. Which of the following is an expenditure-reducing policy?

    1.   ?    A rise in income tax
    2.   ?    Devaluation of the currency
    3.   ?    The introduction of an export subsidy
    4.   ?    The introduction of an import tariff

11. "Increase in imports causes the UK's current account deficit to worsen by £3.2 billion"
    
    Which of the following is most likely to have caused the situation described in the headline? An increase in the UK's

    1.   ?    exchange rate
    2.   ?    aggregate supply
    3.   ?    level of taxation
    4.   ?    rate of productivity growth

12. Which one of the following items would appear as a credit item on the Uk balance of trade in goods?

    1.   ?    the purchase of wine from a French vineyard by a British wine merchant
    2.   ?    a group of American tourists flying to Britain using Concorde
    3.   ?    the purchase of UK produced digital cameras by a German company
    4.   ?    the purchase of shares in a British oil company by Japanese investors