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Chapter 2—International Flow of Funds 1. Recently, the U.S. experienced an annual balance of trade representing a ____. a. large surplus (exceeding $100 billion) b. small surplus c. level of zero d. deficit ANS: D PTS: 1 2. A high home inflation rate relative to other countries would ____ the home countrys current account balance, other things equal. A high growth in the home income level relative to other countries would ____ the home countrys current account balance, other things equal. a. increase; increase b. increase; decrease c. decrease; decrease d. decrease; increase ANS: C PTS: 1 3. If a countrys government imposes a tariff on imported goods, that countrys current account balance will likely ____ (assuming no retaliation by other governments). a. decrease b. increase c. remain unaffected d. either A or C are possible ANS: B PTS: 1 4. ____ purchases more U.S. exports than the other countries listed here. a. Italy b. Spain c. Mexico d. Canada ANS: D PTS: 1 5. An increase in the current account deficit will place ____ pressure on the home currency value, other things equal. a. upward b. downward c. no d. upward or downward (depending on the size of the deficit) ANS: B PTS: 1 6. If the home currency begins to appreciate against other currencies, this should ____ the current account balance, other things equal (assume that substitutes are readily available in the countries, and that the prices charged by firms remain the same). a. increase b. have no impact on c. reduce d. all of the above are equally possible ANS: C PTS: 1 7. The International Financial Corporation was established to: a. enhance development solely in Asia through grants. b. enhance economic development through non-subsidized loans (at market interest rates). c. enhance economic development through low-interest rate loans (below-market rates). d. enhance economic development of the private sector through investment in stock of cor