Deck 3: The Balance of Payments

Question 1

The ________ measures changes in financial assets held by foreign monetary agencies and official reserve asset transactions.

A) Monetary exchange board
B) Unilateral account balance.
C) Official settlements balance.
D) Currency balance sheet.

Answer 1

Official settlements balance.

Question 2

A U.S.resident increasing her holdings of a foreign financial asset causes a:

A) Credit in the U.S. current account
B) Debit in the U.S. current account
C) Credit in the U.S. capital account
D) Debit in the U.S. capital account

Answer 2

Debit in the U.S. capital account

Question 3

The difference between the balance on current account and the balance on capital account is:

A) the balance of payment
B) statistical discrepancy
C) the balance of trade
D) official settlements balance

Answer 3

statistical discrepancy

Question 4

Use the following information to answer questions 2-3.
Table 3.1:

Refer to Table 3.1.The balance on the capital account is:

A) + 900
B) +100
C) 0
D) - 100

Question 5

Use the following information to answer questions 2-3.
Table 3.1:

Refer to Table 3.1.The balance on the current account is:

A) + 100
B) + 200
C) - 100
D) 0

Question 6

Let Y be domestic income,C be consumption,I be investment,G be government spending and T be taxes.The private saving is:

A) Y - C - T - G
B) Y - C - I
C) Y - C - T
D) Y - C - G

Question 7

If the residents of a country receive money from their relatives living abroad,it will be counted as:

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

Question 8

The balance on current account includes all of the following items EXCEPT:

A) merchandise exports minus merchandise imports
B) exports of services minus imports of services
C) income receipts minus income payments on investments
D) changes in U.S. assets owned abroad and foreign assets owned in the U.S.

Question 9

Let Y be domestic income,C be consumption,I be investment,G be government spending and T be taxes.The private saving pluses public saving equal to:

A) Y - C - T - G
B) Y - I
C) Y - C - T
D) Y - C - G

Question 10

A foreign resident increasing her holdings of a U.S.financial asset causes a:

A) Credit in the U.S. merchandise account
B) Debit in the U.S. current account
C) Credit in the U.S. private capital account
D) Debit in the U.S. private capital account

Question 11

A U.S.gift of wheat to a Nicaragua causes a:

A) Debit in the U.S. merchandise account
B) Debit in the U.S. unilateral transfers
C) Debit in the U.S. private capital account
D) Credit in the U.S. private capital account

Question 12

In the twin deficits hypothesis,to reduce a current account deficit,a country has to:

A) increase domestic investment
B) reduce private saving
C) reduce government budget deficit
D) All of the above are correct

Question 13

Which of the following is considered as a capital inflow to the U.S.?

A) A sale of U.S. financial assets to a foreign buyer.
B) A loan from U.S. bank to a foreign borrower.
C) A purchase of foreign financial assets by a U.S. buyer.
D) A U.S. company deposits $1 million in a bank account in Switzerland.

Question 14

Unilateral payments include pensions,private transfers and ________.

A) Demand deposits
B) Foreign aid
C) Tradable goods
D) Tradable services

Question 15

Which of the following is considered a capital inflow?

A) A sale of U.S. financial assets to a foreign buyer.
B) A loan from a U.S. bank to a foreign borrower.
C) A purchase of foreign financial assets by a U.S. buyer.
D) A U.S. citizen's repayment of a loan from a foreign bank.

Question 16

If imports exceed exports,then:

A) private saving exceeds public saving.
B) private saving plus public saving exceed domestic investment.
C) private saving plus public saving minus domestic investment is negative.
D) domestic investment is negative.

Question 17

Michael Phelps,the U.S.Olympic swimmer,spends $2,000 on traveling costs around England after the London Olympic game.This is counted as:

A) Debit to services.
B) Credit to services.
C) Debit to unilateral transfer.
D) Credit to unilateral transfer.

Question 18

Which of the following categories generally has a deficit for the U.S.?

A) Investment income
B) Unilateral transfers
C) Services
D) Balance of payments

Question 19

The net value of flows of goods,services,investment income,and unilateral transfers is called the:

A) Capital account balance
B) Current account balance
C) Merchandise account balance.
D) Official settlements balance.

Question 20

Which of the following is considered a capital outflow?

A) A sale of U.S. financial assets to a foreign buyer.
B) A loan from a U.S. bank to a foreign borrower.
C) A purchase of foreign financial assets by a U.S. buyer.
D) A donation of $100,000 worth of wheat to Nicaragua

Question 21

Capital account transactions include:
I.Foreign purchases of U.S.stocks
II.Goods imports
III.Official financial transactions
IV.Changes in U.S.bank claims on foreign banks

A) I only
B) II only
C) I and IV
D) I, III, and IV

Question 22

The United States,Germany,and China are examples of net creditor nations,where the country owes more to the rest of the world than it is owed.

Question 23

Which of the following is an argument made to explain the large U.S.trade deficit in the 1980's?

A) Deflation in the U.S. dollar
B) Inflation in the U.S.
C) Government budget deficit
D) Government budget surplus

Question 24

In September,2005,exports of goods from the U.S.decreased $3.3 billion to $73.4 billion,and imports of goods increased $3.8 billion to $144.5 billion.This increased the deficit in:

A) The balance of payments
B) The financial account.
C) The current account.
D) Unilateral transfers.

Question 25

A U.S.car company builds a factory in Mexico causes a:

A) Debit in U.S. services
B) Debit in the U.S. unilateral transfers
C) Debit in the U.S. private capital account
D) Credit in U.S. private capital account

Question 26

A Belgian company pays $100,000 to a consulting company in Chicago for a consulting report.This causes a:

A) Credit in the U.S. investment income
B) Debit in the U.S. investment income
C) Credit in U.S. services
D) Debit in U.S. services

Question 27

The German government donates $100,000 worth of vaccine to Tanzania.This action is recorded as a $100,000 debit to the German unilateral transfers.

Question 28

A trade surplus occurs when the current account is greater than the capital account.

Question 29

A U.S.resident receives $1,000 in interest from French bonds he owns causes a:

A) Credit to service
B) Debit to service
C) Credit to investment income
D) Debit to investment income

Question 30

A foreign resident buys shares of in a U.S.company stock in the New York Stock Exchange.

A) Credit in U.S. services
B) Credit to the U.S. unilateral transfers
C) Credit in the U.S. private capital account
D) Debit in U.S. services

Question 31

What is a country called if its accumulated capital account balances results in it owing more than it is owed?

A) Complete debtor
B) Complete creditor
C) Net debtor
D) Net creditor

Question 32

A U.S.gift of wheat to a Nicaragua causes a:

A) Credit in the U.S. merchandise account
B) Credit in the U.S. unilateral transfers
C) Credit in the U.S. private capital account
D) Debit in the U.S. private capital account

Question 33

A U.S.citizen takes a cruise on a Norwegian cruise line to Canada causes a:

A) Credit in U.S. services
B) Credit to the U.S. unilateral transfers
C) Credit in the U.S. private capital account
D) Debit in the U.S. private capital account

Question 34

Which of the following is an example of an outflow in the U.S.capital account?

A) A foreign resident purchases a U.S. made car from a foreign dealer.
B) A U.S. firm gives 90 days for a $1,000,000 note to be paid off by a French importer of U.S. goods.
C) A U.S. firm pays salaries to employees based in Paris.
D) A foreign firm receives a payment for exports from a U.S. firm.

Question 35

Bank claims and liabilities,security purchases,direct investments are examples of items found in the capital account.

Question 36

The current account balance measures all of the following except:

A) Foreign cash payments
B) Goods imports and goods exports
C) Net receipts of investment income
D) Unilateral transfers

Question 37

The double-entry bookkeeping for the balance of payments tracks tariffs and currency exchanges.

Question 38

A Japanese store buys Apple iPods shipped from the U.S.causes a:

A) Credit in the U.S. merchandise account
B) Debit in the U.S. merchandise account
C) Credit to U.S. investment income
D) Debit to U.S. investment income

Question 39

The U.S.subsidiary of a South Korean company pays dividends to its parent company in South Korea causes a:

A) Credit in the U.S. investment income
B) Debit in the U.S. investment income
C) Credit in U.S. services
D) Debit in U.S. services

Question 40

Remittances by foreigners in the U.S.,pension paid and aid offered by the U.S.to its citizens living abroad are examples of:

A) Reserve asset transfers
B) Investment income
C) Export of services
D) Unilateral transfers

Question 41

Investment income,unilateral payments,and the value of trade of merchandise and services define the current account.

Question 42

What kind of currency exchange system will prevent the balance of payments from being automatically balanced?

A) Monetary unions
B) Fixed exchange rate
C) Floating
D) Managed floating

Question 43

Which of the following is not a method to restore a balance of payments equilibrium in a surplus country?

A) Government mandated quotas
B) Accumulate international reserves
C) Allow the use of flexible exchange rates
D) Price controls

Question 44

Current account deficits are offset by capital account ________.

A) Assets
B) Revenues
C) Surpluses
D) Imports

Question 45

The Algerian government receives $1,000,000 worth of seed from the U.S.government as a gift.This action is recorded as a $1,000,000 debit to the U.S.merchandise account.

Question 46

In the balance of payments debits are recorded as negative entries and credits are recorded as positive entries.

Question 47

Because foreigners hold a greater claim to U.S.assets than U.S.residents to foreign assets,U.S.is a ________.

A) Net creditor
B) Trade creditor
C) Trade debtor
D) Net debtor

Question 48

For unfair trade to be a reasonable explanation for the U.S.trade deficit then it is reasonable that

A) Foreign countries must have simultaneously increased trade protection in 1982.
B) U.S. manufacturing must have experienced a sharp decline in the years preceding 1982.
C) Foreign interest rates must have decreased the value of the U.S. dollar in 1982.
D) Foreign countries must have simultaneously reduced trade protection in 1982.

Question 49

A decrease in the U.S.-owned deposit in foreign banks is an ________ to the U.S.capital.

A) Credit to the private capital account
B) Debit to the private capital account
C) Credit to the official capital account
D) Debit to the official capital account

Question 50

Unlike the trade balance of exports and imports,the balance of payments equilibrium has a zero balance at all times.

Question 51

The current account shows international transactions that involve currently produced goods and services.