QCM : Fundamentals of Economics and International Finance — 8 questions

Explication

Opportunity cost is defined as the value of the next best alternative that is foregone when making a decision, which is fundamental in understanding trade-offs in economics.

Explication

Adam Smith is recognized as the founder of classical economics, with his influential work 'The Wealth of Nations' published in 1776. The other options refer to economists associated with different schools or periods: David Ricardo (early 19th century), Keynes (1936), and Marx (1867).

Explication

Microeconomic foundations aim to explain macroeconomic phenomena by analyzing how individual agents' decisions and behaviors aggregate to produce overall economic outcomes. This micro-to-macro link is central to understanding the role of microeconomic analysis in macroeconomics.

Explication

The concept of 'Macroeconomic Aggregates' became prominent after the publication of Keynes' 'The General Theory' in 1936, which marked the formal establishment of macroeconomics as a distinct field focusing on aggregates like GDP, national income, and total employment.

Explication

The correct answer is that the current account records income flows such as trade and income from abroad, while the capital and financial account records capital movements like investments. These are distinct components of the Balance of Payments, with the current account focusing on income and trade, and the capital/financial account focusing on capital transfers and investments. They are interconnected but serve different functions.

Explication

Adam Smith is credited with proposing the concept of absolute advantage, which states that a country should specialize in producing and exporting goods for which it is more efficient than other countries. This concept was introduced in his work 'The Wealth of Nations' and is a foundational idea in international trade theory.

Explication

The primary cause of changes in the overall money supply is the process of money creation by commercial banks when they extend loans. This process increases the money supply beyond the monetary base, influencing economic activity and inflation.

Explication

Lowering the policy interest rate directly reduces the cost of borrowing for banks and consumers, encouraging borrowing and investment, which stimulates economic growth. Adjusting reserve requirements and conducting open market operations are also tools but are less directly targeted at influencing borrowing costs. Quantitative easing is used mainly during extraordinary circumstances when traditional interest rate adjustments are limited.