The 'International Fisher Effect' relates exchange rate changes to: MCQ with Answer and Explanation

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The 'International Fisher Effect' relates exchange rate changes to:

A. interest rate differentials

B. inflation differentials

C. reserve levels

D. trade balances

Answer: Option A

Solution (By JKSSB Mock Tests)

The International Fisher Effect suggests currencies with higher nominal interest rates will depreciate due to inflation.

This question belongs to: Economy GK Economy Set 1

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Practice More Economy Set 1 Questions

Question #1

Which of the following is a characteristic of the 'Endogenous Money' view?

A. Only the monetary base matters

B. The money supply is strictly controlled by the central bank through the monetary base

C. The money supply is determined primarily by the demand for bank credit and accommodates itself to that demand

D. Banks play no role in money creation

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Correct Answer: Option C

Explanation:
The endogenous-money approach argues that the quantity of money is determined by the demand for loans and the willingness of banks to extend credit, with the central bank mainly setting the price of reserves rather than the quantity of base money.

This question belongs to: Economy GK Economy Set 1

Question #2

The 'Goods and Services Tax' Composition Scheme is designed to:

A. increase compliance burden

B. reduce compliance burden for small taxpayers

C. eliminate input tax credit for large taxpayers

D. increase tax rates

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Correct Answer: Option B

Explanation:
Composition scheme reduces compliance burden for small taxpayers.

This question belongs to: Economy GK Economy Set 1

Question #3

In the context of international reserves, the 'Guidotti-Greenspan Rule' suggests that:

A. Reserves should equal only three months of imports

B. Reserves are unnecessary under floating rates

C. Reserves should equal total external debt

D. Countries should hold reserves at least equal to short-term external debt

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Correct Answer: Option D

Explanation:
The Guidotti-Greenspan rule is a rule of thumb recommending that emerging-market countries hold foreign-exchange reserves at least equal to their short-term external debt in order to reduce vulnerability to sudden stops.

This question belongs to: Economy GK Economy Set 1

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