AE 4 - Economic Development

I. Matching Type.

A. Balance of Payments I. Debt-For-Nature Swap

B. Capital Account J. Economic Integration
C. Common Market K. Economic Union
D. Current Account L. Free-Market Exchange Rate
E. Customs Union M. Free-Trade Area
F. Debt Repudiation N. Restructuring
G. Debt Service O. Structural Adjustment Loans
H. Debt-For-Equity Swap P. None of the Above

1. M A form of economic integration in which free trade exists among member

countries but members are free to levy tariffs on nonmember countries.

2. C A form of economic integration in which there is free internal trade, a

common tariff, and the free movement of labor and capital among partner states.

3. E A form of economic integration in which two or more nations agree to free all
internal trade while levying a common external tariff on all nonmember countries.

4. H A mechanism used by indebted developing countries to reduce the real value

of external debt by exchanging equity in domestic companies (stocks) or fixed-interest
obligations of the government (bonds) for private foreign debt at large discounts.

5. A A summary statement of a nation’s financial transactions with the outside

world.

6. N Altering the terms and conditions of debt repayment, usually by lowering

interest rates or extending the repayment period.

7. O Loans by the World Bank to developing countries in support of measures to

remove excessive governmental controls, make factor and product prices reflect
scarcity values, and promote market competition.

8. L Rate determined solely by international supply and demand for domestic

currency expressed in terms of, say, U.S. dollars.

9. I The exchange of foreign debt held by an organization for a larger quantity of

domestic debt that is used to finance the preservation of a natural resource or
environment in the debtor country.

10. F The fear in the developed world that developing countries would stop paying
their debt obligations.

11. K The full integration of two or more economies into a single economic entity.

12. J The merging to various degrees of the economies and economic policies of
two or more countries in a region.

13. D The portion of a balance of payments that states the market value of a
country’s exports and imports.

14. B The portion of a country’s balance of payments that shows the volume of
private foreign investment and public grants and loans that flow into and out of a
country over a given period, usually one year.
15. G The sum of interest payments and repayments of principal on external
public and publicly guaranteed debt.

II. True or False.

1. False U.S. dollar, Philippine Peso, Chinese Yuan are considered as Hard
Currency.

2. False Export Substitution deliberate effort to replace consumer exports by

promoting the emergence and expansion of domestic industries.

3. False Regional trading bloc is an economic coalition among countries within a

geographic region, usually characterized by liberalized external trade and uniform
restrictions on internal trade, designed to restrict regional economic integration and
growth.

4. True Conditionality is a requirement imposed by IMF that a borrowing country

undertake fiscal, monetary, and international commercial reforms as a condition for
receiving a loan to resolve balance of payments difficulties.

5. False Foreign aid is an internal transfer of public funds in the form of loans or
grants either directly from one province to another (bilateral assistance).

6. True Deficit is an excess of expenditures over revenues.

7. True Surplus is an excess of revenues over expenditures.

8. False Restructuring is the the terms and conditions of debt repayment, usually
by increasing interest rates or shortening the repayment period.

9. False Overvalued exchange rate is the official exchange rate set at a level lower
than its real or shadow value.

10. False International reserves are a country’s balance of gold, hard currencies,
and special drawing rights used to settle international transactions.

11. True Structural adjustment loans were designed to promote a fundamental

restructuring of the economies of countries plagued by chronic trade and budget
deficits by improving the macroeconomic policy environment.

12. True A creditors’ cartel is a group of developing-country debtors who join

together to bargain as a group with creditors.

13. True Foreign aid usually supplements scarce domestic resources.

14. True Donor-country governments give aid because it is in their political,

strategic, or economic self-interest.

15. True International reserves serve for countries the same purpose that bank
accounts serve for individuals.

III. Multiple Choice.

C 1. In the balance of payments account, which statement/s is/are correct?

a. Debt service payments increases the current account balance.
b. Investment income increases the current account balance.
c. Imports of goods and services decreases the current account balance.
d. Both b & c

D 2. Which of the following are included in the international cash reserves?

e. Foreign hard currency
f. Gold
g. Deposits with the International Monetary Fund
h. All of the Above

D 2. The following are sources of international flow of financial resources, except:

i. The foreign direct and portfolio investment
j. Remittances of earnings by international migrants
k. Foreign aid
l. Domestic earnings

A 3. Outward-looking development policies are:

m. Policies that encourage exports, a welcome to multinational corporations; and
open communications.
n. Policies that stress economic self-reliance on the part of developing countries.
o. Both a & b
p. None of the above

D 4.What is true about infant industries?

q. Many infants never grow up, content to hide behind protective tariffs and
governments loath to force them to be more competitive by lowering tariffs.
r. Infant industries always succeed.
s. With enough time and sufficient protection, the infant will eventually grow up,
be directly competitive with developed-country producers, and no longer need this
protection.
t. Both a & c

D What is true about synthetic substitution?

u. The synthetic share of world market export earnings has generally risen over time.
v. The share of natural products has fallen.
w. Both a & b
x. None of the above

A Which statement is correct about tariff?

y. The higher the tariff, the closer to the domestic price the sum of the world price
plus the import tax will be.
z. The lower the tariff, the closer to the domestic price the sum of the world price plus
the import tax will be.
aa. The higher the tariff, the closer to the domestic price the sum of the world price
minus the import tax will be.
bb. None of the above

C 5. The following are hard currencies, except:

cc. Gold
dd.US Dollars
ee. Chinese Yuan
ff. Philippine Peso

C 6. It is the gradual payoff of a loan principal:

gg. Depreciation
hh. Depletion
ii. Amortization
jj. Goodwill

A 7. One can improve the balance on Current Account by:

kk.Promoting Export Expansion
ll. Limiting Imports
mm. Both a & b
nn. None of the Above