Which statement about the loanable funds market is false?
Correct answer D. An increase in a country's net capital outflow shifts the supply of loanable funds to the left
Topic / 18 questions
Budget Deficits And The Trade Balance MCQs
Budget Deficits And The Trade Balance MCQs cover how government borrowing, national saving and investment are linked with a country's trade balance and exchange rate. They help economics students and CSS, PMS, UGC NET and BCS candidates. Each question has an instant answer, so you can test open-economy macroeconomics ideas step by step.
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Which statement about the loanable funds market is correct?
Correct answer B. An increase in the government budget deficit shifts the supply of loanable funds to the left
What is the effect of an increase in Pakistan’s government budget deficit?
Correct answer A. It decreases Pakistan's net exports and net capital outflow by the same amount
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What does the phrase ‘twin deficits’ refer to?
Correct answer D. A country's trade deficit and its government budget deficit
Which statement about the market for foreign currency exchange is correct?
Correct answer D. An increase in Pakistan's net capital outflow increases the supply of rupees and the rupee depreciates
The EU imposes a quota on clothing imports from China, reducing UK clothing imports. What happens to UK net exports?
Correct answer A. Net exports will remain unchanged
Political instability leads Russians suddenly to buy UK assets instead of Russian assets. What happens to the value of the pound and to UK net exports?
Correct answer A. The pound appreciates, and UK net exports fall
What is the effect of an increase in private saving in Pakistan?
Correct answer B. It increases Pakistan's net exports and net capital outflow by the same amount
Which of these is an example of a trade policy?
Correct answer C. A tariff on sugar
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Which group would be most harmed by a UK government budget deficit?
Correct answer D. BAE Systems wishing to sell aircraft to Saudi Arabia
What is the effect of capital flight on a country?
Correct answer D. Increases a country's net exports and decreases its long-run growth path
What is the effect of an increase in the government budget deficit?
Correct answer A. Increases the real interest rate and crowds out investment
If Europeans develop a stronger taste for UK-built Hondas, what happens to the pound and UK net exports?
Correct answer D. Appreciate, but the total value of UK net export stays the same
The EU imposes a quota on clothing imports from China, reducing UK clothing imports. What happens in the market for foreign currency exchange?
Correct answer C. The demand for pounds increases, and the pound appreciates
Political instability leads Russians suddenly to invest in UK assets instead of Russian assets. What happens to UK net foreign investment?
Correct answer C. UK net foreign investment falls
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Which statement about trade policy is correct?
Correct answer B. A country's trade policy has no impact on the size of its trade balance
Which group would NOT benefit from an EU import quota on Japanese cars?
Correct answer C. EU farmers who export grain
An export subsidy should have the opposite effect to which of these?
Correct answer A. A tariff
About Budget Deficits And The Trade Balance MCQs
This Macroeconomics topic uses the open-economy model of saving, investment and net exports. Questions cover the twin deficits idea, the link between a government budget deficit and a trade deficit, and how changes in private saving affect the loanable funds market and net capital outflow. You will also analyse how a quota, an export subsidy or a change in foreign tastes shifts the demand for or supply of a currency and so moves the exchange rate. These chain-of-reasoning questions need you to follow each step in order, so practising them slowly first builds accuracy.
Exams that include Budget Deficits And The Trade Balance MCQs
Pakistan
- CSS
- PMS
- FPSC
- PPSC
- Lecturer tests
- Banking job tests
India
- UPSC CSE
- UGC NET
- IBPS PO
- SBI PO
Bangladesh
- BCS
- Bangladesh Bank recruitment
- Bank job exams
Frequently asked questions
What are twin deficits?
Twin deficits refers to a country running a government budget deficit and a trade (current account) deficit at the same time. A budget deficit reduces national saving, which can push up interest rates, attract foreign capital, raise the currency's value and so widen the trade deficit.
How does an import quota affect the exchange rate?
An import quota reduces the demand for foreign goods, so fewer people need foreign currency to pay for imports. In the standard model this raises the value of the home currency, which in turn reduces exports, so net exports change little overall.
How many Budget Deficits And The Trade Balance MCQs are on MCQs360?
MCQs360 has 18 MCQs on Budget Deficits And The Trade Balance, all with instant answers, free and with no sign-up. Revise the identity that net exports equal saving minus investment before attempting them. Draw the arrows of cause and effect on paper for each question.
Last reviewed October 2026