Question Details

How are the Asian central banks financing them 



1. “The Czech central bank is trying to stop the government issuing the country- maiden sovereign international bond [ie, the first bond issued by the Czech government in a foreign currency (Euros)] next year because it fears it could create another exchange rate bubble.” Why would this bond issue create a rise in the value of the Czech currency? 
a)	exports should rise 
b)	imports should fall 
c)	capital inflows should increase 
d)	capital outflows should increase 

2. “Our leaders have convinced themselves that the falling dollar will improve the economy by eliminating the trade deficit, reducing inflation, and improving our GDP.” 
Which of these three conclusions doesn’t make any sense? 
a)	eliminating the trade deficit 
b)	reducing inflation 
c)	improving GDP 
d)	they all make sense 
3. “The U.S. current account deficit has risen close to 5% of GDP but has not caused a fall in the U.S. dollar because ….” This clip is best completed with 
a)	exports have risen 
b)	imports have fallen 
c)	capital inflows have increased 
d)	capital inflows have decreased 

“The U.S. twin deficits are being financed by Asian central banks.” 
The next three questions refer to this statement. 
4. What are the twin deficits? 
a)	a budget deficit and a balance of payments deficit 
b)	a budget deficit and a current account deficit 
c)	a money supply deficit and a balance of payments deficit 
d)	a money supply deficit and a current account deficit 

5. How are the Asian central banks financing them ? 
a)	by increasing their imports from the U.S. 
b)	by buying U.S. government bonds 
c)	by printing Asian money 
d)	by raising Asian taxes 



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