Deck 9: Financing Current-Account Deficits

Question 1

A fiscal deficit in Latin America can lead to an increase in:

A) dollar denominated debt.
B) the monetary base.
C) the current account deficit.
D) all of the above
E) none of the above

Answer 1

B

Question 2

Borrowing by countries in the form of bonds or bank loans is known as:

A) remittances
B) equity
C) debt
D) default
E) FDI

Answer 2

C

Question 3

A current account deficit could be offset by inflows of _____ and _____.

A) FDI
B) porfolio capital
C) retained earnings
D) a and b
E) b and c

Answer 3

D

Question 4

Quickly lowering a current account deficit often involves:

A) increasing inflation.
B) an appreciation of the currency.
C) lowering GDP.
D) a larger fiscal deficit.
E) none of the above

Question 5

A current account deficit could be offset by:

A) a fixed exchange rate.
B) FDI.
C) inflows of portfolio capital.
D) a and b
E) b and c

Question 6

A country's ability to service foreign debt is highly related to:

A) X - M / Y
B) X / Y
C) debt service / X
D) the price of rice
E) none of the above

Question 7

Inability to repay a debt is known as:

A) equity.
B) disclosure.
C) IMF.
D) default
E) none of the above

Question 8

At its worst point, long-term debt was valued at what percentage of GDP for Latin America?

A) 10%
B) 20%
C) 50%
D) 80%
E) 100%

Question 9

Commercial banks lending money to foreign governments in known as what?

A) national lending
B) international lending
C) foreign lending
D) sovereign lending
E) governmental lending

Question 10

In which decade did FDI become an important part of the financial account in Latin America?

A) 1960s
B) 1970s
C) 1980s
D) 1990s
E) 2000s

Question 11

Which of the following can be a part of financing a current account deficit?

A) remittances
B) FDI
C) exports of services
D) all of the above
E) none of the above

Question 12

Which of the following is a form of equity?

A) IMF loans
B) World Bank loans
C) remittances
D) FDI
E) none of the above

Question 13

In which decade was FDI low?

A) 1970s
B) 1980s
C) 1990s
D) 2000s
E) a and b

Question 14

FDI:

A) makes financing the current account harder.
B) makes financing the current account easier.
C) reduces the size of the financial account.
D) is created by World Bank loans.
E) none of the above

Question 15

A financial account surplus is linked to:

A) merchandise exports.
B) imports of services.
C) remittances.
D) ODA.
E) a current account deficit.

Question 16

Which country recently had a currency board?

A) Mexico
B) Argentina
C) Ecuador
D) Brazil
E) Chile

Question 17

Which of these is not a form of debt?

A) FDI
B) government issued bonds
C) borrowing from IMF
D) borrowing from commercial banks
E) borrowing from World Bank

Question 18

As of 2017, FDI was around what percentage of total GDP for Latin America?

A) 12%
B) 3%
C) 6.8%
D) 9.1%
E) 2.4%

Question 19

In many cases, official development assistance is given with the purpose of developing _____, which is essential or economic growth.

A) infrastructure
B) government
C) nature parks
D) healthcare
E) national security

Question 20

A gift from a donor country to be used for economic development or national security is known as:

A) loan
B) debt
C) default
D) equity
E) grant

Question 21

Which Latin American nation used "guano bonds" to repay loans it had taken on early into its independence?

A) Mexico
B) Peru
C) Argentina
D) Ecuador
E) Panama

Question 22

Most of the ODAs received by Latin America come from where?

A) Asia
B) Europe
C) Africa
D) U.S.
E) Russia

Question 23

Which of these is a great ODA success story for Latin America?

A) the IMF
B) the World Bank
C) the Bretton Woods system
D) sovereign lending
E) the Inter-American Development Bank

Question 24

Which of the following is associated with ODA?

A) IMF
B) World Bank
C) IMA
D) WTO
E) none of the above

Question 25

Restrictions on monetary and fiscal policy are associated with:

A) World Bank lending.
B) IADB lending.
C) IMF lending.
D) Bank of America lending.
E) Chinese lending.

Question 26

Which of these was not an IMF austerity program policy request?

A) lower government spending
B) higher taxes
C) reduced demand for foreign exchange
D) reduced GDP
E) lower taxes

Question 27

Remittances account for what percent of total GDP for Latin America?

A) 10%
B) 2%
C) 8%
D) 4%
E) 0%

Question 28

The countries for which remittances are large tend to be some of the _____ countries.

A) richest
B) poorest
C) Central American
D) largest by population
E) most stable

Question 29

Which of the following would cause a currency to depreciate?

A) relatively high inflation
B) relatively fast economic growth
C) low commodity prices
D) all of the above
E) none of the above

Question 30

The "Lost Decade" in Latin America was the:

A) 1870s.
B) 1920s.
C) 1970s.
D) 1980s.
E) 1990s.

Question 31

Austerity programs are associated with:

A) the World Bank.
B) UNCTAD.
C) the IMF.
D) IADB.
E) none of the above

Question 32

Suppose that the Mexican peso depreciated from 12.5 pesos per dollar to 50. Draw a graph and explain how this would affect inflation and GDP in Mexico. Now show how an IMF austerity program changes that equilibrium.

Question 33

Describe how a fixed exchange rate could lead to an accumulation of debt.

Question 34

Describe an IMF austerity program. What was the goal of such a program, and how was this accomplished.

Question 35

Describe the importance of flows of FDI to Latin America.

Question 36

Because remittances are such a small part of the GDP of Latin America they are not important to the region. Discuss this statement.

Question 37

Why is the debt/export ratio important? Why did this ratio rise in Latin America in the 1970s and 1980s?

Question 38

Describe both debt and equity. What are some benefits, as well as costs, to each?

Question 39

Why was much of Latin America so slow to change to a floating exchange rate? How did the insistence on a fixed exchange rate contribute to the Lost Decade?

Question 40

Describe the Inter-American Development Bank. What key features of the bank have contributed to its success?