Quiz 4A_Macro

Quiz 4A_Macro - BSc II Section B Macroeconomics Spring 2011...

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BSc II Section B Macroeconomics Spring 2011 Quiz 4 (A) Lahore School of Economics Macroeconomics II Spring Term 2011 Quiz 4:  BSc. 2, Section B Instructions:  Answer all questions in the spaces provided below. For full marks, make sure to  show all calculations.  Calculators, pencils, pens, rulers, etc. cannot be shared and cell phones  cannot be used as calculators. Total points: 60 1. The figures for balance of payments of Pakistan have been provided to you on the attached  sheet. (A) Explain the general trend of the following variables and stress whether they could pose  a problem for a developing country like Pakistan? (8 points) i) Current Account ii) Capital Account iii) Financial Account iv) Change in gross reserves Explain briefly the relationship between “ overall balance ” and “ gross reserves The current account remained negative with the lowest value in 2008. Financial account and capital  account surplus: very low to cover up the large and negative trade balance although few years,  Pakistan ended up with positive “Overall” balance. Reserves firstly increased and then kept on  falling and were lowest in the middle of 2008 when IMF intervened and then onwards the reserves  grew. Student Name and ID Number: Page 1
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BSc II Section B Macroeconomics Spring 2011 Quiz 4 (A) When the overall balance was positive, foreign reserves grew (negative sign) and fell when it was  negative.  (B) Many economists say that the slowdown in the global economy (and especially in the  Middle Eastern countries) will lead to a fall in workers remittances. Explain how that will  impact the balance of payments? (5 points) If WR decrease, that will reduce the current account balance leading to a larger current account  deficit. Less inflow of foreign currency will also reduce foreign exchange reserves. Hence, balance  of payment deficit would worsen leading to a further decrease in reserves that would finance the  BOP deficit. 2 A)
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Quiz 4A_Macro - BSc II Section B Macroeconomics Spring 2011...

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