Deck 12: The Balance of Payments

Question 1

The current account includes

A) the value of trade in merchandise.
B) services.
C) unilateral transfers.
D) All of the above.

Answer 1

D

Question 2

A current account surplus implies that

A) the country is a net lender with the rest of the world.
B) the country is running a net capital account surplus.
C) foreign investment in domestic securities is at very low levels.
D) All of the above.

Answer 2

A

Question 3

The current account is equal to

A) S - I.
B) C + I + G + X.
C) I + X.
D) T - G.

Answer 3

A

Question 4

indicates whether a country is a net borrower from or lender to the rest of the world.

A) The basic balance
B) The liquidity balance
C) The capital account
D) The current account

Question 5

the largest international debtor in the world.

A) Brazil
B) Mexico
C) Italy
D) The United States

Question 6

Merchandise exports minus imports equal the

A) basic balance.
B) liquidity balance.
C) official settlements balance.
D) balance of trade.

Question 7

With floating exchange rates, BOP equilibrium is restored by

A) trade restrictions.
B) earnings from foreign investments.
C) exchange rate changes.
D) All of the above.

Question 8

Current account deficits are offset by

A) the liquidity balances.
B) capital account surpluses.
C) the basic balance.
D) balance of trade surpluses.

Question 9

The balance of trade records

A) trade in financial assets.
B) the current account plus long-term capital.
C) the value of merchandise exports minus imports.
D) short-term capital plus the basic balance.

Question 10

Debit entries on the Balance of Payments are the entries that would

A) mean a loss of foreign exchange.
B) bring foreign exchange into the country.
C) indicate a surplus exists.
D) exist at the bottom line after all accounts are totaled.

Question 11

The payment of a dividend by an American company to a foreign stockholder represents

A) a debit in the U.S. capital account.
B) a credit in the U.S. current account.
C) a credit in the U.S. official reserve account.
D) a debit in the U.S. current account.

Question 12

is necessary to "balance" the BOP statement.

A) Reserve inflow
B) Statistical discrepancy
C) Debit transaction
D) Credit transaction

Question 13

The U.S. Balance of Payments is constructed by

A) the U.S. Department of Labor.
B) the U.S. Department of Agriculture.
C) the U.S. Department of Commerce.
D) the Council of Economic Advisers to the President.

Question 14

In the BOP, travel and tourism are included in the category of

A) unilateral transfers.
B) capital account.
C) merchandise account.
D) services account.

Question 15

If we add the balance on long-term capital to the current account we get

A) the official settlements balance.
B) the balance of trade.
C) the liquidity balance.
D) the basic balance.

Question 16

Which of the following transactions is a debit in the current account?

A) export of merchandise
B) export of services
C) gift to foreigners
D) foreign bond purchase

Question 17

Direct investment and security purchases are included in

A) current account items.
B) capital account items.
C) basic balance account items.
D) unilateral transfers.

Question 18

Security purchases in the United States by foreigners is

A) a credit item in the current account.
B) a debit item in the capital account.
C) a credit item in the capital account.
D) a debit item in the current account.

Question 19

The excess of total credits over total debits in the current and private capital accounts is called

A) BOP deficit.
B) BOP surplus.
C) official settlements account surplus.
D) official reserve assets.

Question 20

Interest earned on foreign holdings of U.S. federal, state and local government debt are recorded in the

A) services account.
B) merchandise account.
C) transfers account.
D) capital account.

Question 21

With fixed exchange rates, central banks must finance trade deficits, allow a devaluation, or else use trade restrictions to restore equilibrium.

Question 22

The U.S. is the world's largest creditor.

Question 23

In the mid 1980s, the massive current account deficits were related to massive U.S. government budget deficits.

Question 24

In international finance, what does SDR stand for?

A) Special Drawing Rights.
B) Single Deposit Reserve.
C) Savings Deposit Ratio.
D) Single Demand Remittance.

Question 25

With flexible exchange rates, central banks do not have to finance deficits because BOP equilibrium is restored by changes in exchange rates.

Question 26

National saving minus investment equals the current account.

Question 27

International Reserve assets are comprised of gold, foreign exchange, and IMF special drawing rights.

Question 28

It is possible for each nation to have BOP surpluses.

Question 29

Because of the limited usefulness of both the basic balance and the liquidity balance accounts, these two accounts are omitted in the official BOP table.

Question 30

The Balance of Payments always balances.

Question 31

Large current account deficits imply large financial account surpluses.

Question 32

The United States finances current account deficits largely with dollars and, as a result, faces almost no constraint on its ability to run deficits.

Question 33

International free trade always hurts the nations that run deficits, and benefits the nations that run surpluses.

Question 34

Define the official settlements balance. Is there any difference between the United States and other countries in terms of what this balance measures? How does this affect the ability of the countries to run current account deficits?

Question 35

The current account can be defined as exports plus imports.

Question 36

In basic terms, the current account is equal to

A) imports plus exports.
B) savings minus consumption.
C) exports minus imports.
D) savings plus exports.

Question 37

How are the current account and the financial account related?

Question 38

The United States became a net international debtor in 1985 for the first time since World War I.

Question 39

If a country has a large deficit in its current account

A) it has a large surplus in its financial account.
B) it exports more than it imports.
C) it is a net creditor to the rest of the world.
D) None of the above are necessarily true.

Question 40

If domestic saving exceeds investment, there will be a current account surplus.