Question 1

The US savings deficit can be attributed,in part,to&#10;A)the growing US budget deficit&#10;B)high real interest rates abroad&#10;C)low American investment in plant and equipment&#10;D)rising US taxes on capital accumulation

Accepted Answer

The growing US budget deficit means that the government is spending more money than it is receiving in revenue, which reduces the amount of savings available for private investment. This contributes to the savings deficit.

Question 2

balance of trade deficit results in a current account&#10;A)deficit&#10;B)surplus&#10;C)IMF intervention&#10;D)World Bank loan

Accepted Answer

A balance of trade deficit means that a country is importing more goods and services than it is exporting, which results in a current account deficit. This means the country is spending more money on imports than it is earning from exports, which can lead to a decrease in foreign currency reserves and potentially weaken the country's currency. In response, a country may need to take measures such as reducing imports or increasing exports to address the current account deficit. IMF intervention and World Bank loans may be options to address a current account deficit, but they are not directly caused by a balance of trade deficit.

Question 3

Recent US trade deficits can be attributed to&#10;A)Japanese protectionism&#10;B)high US wages and benefits&#10;C)lack of American competitiveness abroad&#10;D)the US savings deficit

Accepted Answer

The US savings deficit, which means that the country is spending more than it is saving, is the primary cause of recent trade deficits. This has led to a dependence on foreign investment and borrowing to fund consumption, resulting in a negative balance of trade.

Question 4

In a freely floating exchange rate system,if the capital account is running a deficit&#10;A)the balance of payments must run a deficit&#10;B)the balance of payments must be a deficit&#10;C)the current account must run a deficit&#10;D)the current account must run a surplus

Accepted Answer

In a freely floating exchange rate system, if the capital account is running a deficit (meaning more capital is leaving the country than entering), the current account must run a surplus to balance it out. This is because the balance of payments is the sum of the current account and the capital account, and it must always balance to zero. A surplus in the current account indicates that a country is exporting more than it is importing, which can offset the capital leaving the country.

Question 5

sale of American computers to the Spanish government shows up as&#10;A)a debit on the official reserves account&#10;B)a credit on the official reserves account&#10;C)a credit on the trade account&#10;D)a debit on the current account

Accepted Answer

The sale of American computers to the Spanish government represents an export, which will increase the value of exports on the trade account. Therefore, it would be credited on the trade account.

Question 6

If a real value of a nation's freely floating currency increases,and the nation's current account is initially zero,its capital account will most likely be&#10;A)in deficit&#10;B)in surplus&#10;C)adjusted for the rate of inflation&#10;D)decreased by the amount of increase in the current account

Accepted Answer

When the real value of a nation's freely floating currency increases, it makes imports cheaper and exports more expensive. This results in an increase in the nation's trade surplus or a decrease in its trade deficit. As the current account is initially zero, the increase in the real value of the currency will lead to a current account surplus. This surplus will induce capital inflows, resulting in a capital account surplus. Therefore, the capital account will most likely be in surplus.

Question 7

change in private domestic borrowing or lending required to keep payments in balance without adjusting official reserves is called&#10;A)the net liquidity balance&#10;B)the balance of payments&#10;C)the balance on current account&#10;D)the balance on capital account

Accepted Answer

The change in private domestic borrowing or lending required to keep payments in balance without adjusting official reserves is called the net liquidity balance. It is the excess or shortfall of private lending and borrowing that is needed to maintain the balance of payments without any change in official reserves.

Question 8

Which of the following accounts is the best measure of the change in private domestic borrowing or lending that is required to keep payments in balance without adjusting official reserves?&#10;A)net liquidity balance&#10;B)direct investment&#10;C)basic balance&#10;D)official reserve transactions balance

Accepted Answer

The answer of Which of the following accounts is the...

Question 9

In a freely floating exchange rate system,if the capital account surplus for the U.S.rises,what will most likely happen to the real value of the dollar?&#10;A)it will decline&#10;B)it will rise&#10;C)there is no impact on the dollar&#10;D)the IMF will step in to adjust rising exchange rates

Accepted Answer

A capital account surplus means there is an inflow of foreign investments into the U.S., leading to an increase in demand for the dollar. This, in turn, leads to a rise in the real value of the dollar in a freely floating exchange rate system.

Question 10

is another name for gifts and grants overseas?&#10;A)Unilateral transfers&#10;B)Basic balance&#10;C)Reserve assets&#10;D)Direct investment

Accepted Answer

Unilateral transfers refer to one-way transfers of money or goods from one country to another, without any expectation of receiving something in return. Gifts and grants overseas fall under this category. Therefore, the correct choice is A) Unilateral transfers.

Question 11

accounting statement that summarizes all the economic transactions between residents of the home country and residents of all other countries is called the&#10;A)balance of trade&#10;B)current account balance&#10;C)balance of payments&#10;D)capital account balance

Accepted Answer

The answer of accounting statement that summarizes all the economic...

Question 12

account that records imports and exports of goods,services,income,and current unilateral transfers is known as the&#10;A)current account&#10;B)capital account&#10;C)financial account&#10;D)balance-of-payment account

Accepted Answer

The answer of account that records imports and exports of...

Question 13

The Japanese current account surplus can best be attributed to&#10;A)the high rate of Japanese domestic investment&#10;B)Japanese protectionism&#10;C)the high rate of Japanese savings&#10;D)government budget deficits

Accepted Answer

The answer of The Japanese current account surplus can best...

Question 14

To which balance of payment category would purchases of gold by the Bank of England belong?&#10;A)Official Reserve Account&#10;B)Current Account&#10;C)Capital Account&#10;D)Unilateral transfers

Accepted Answer

The answer of To which balance of payment category would...

Question 15

In a freely?floating exchange rate system,the sale of Japanese cars to the United States will be offset by which item on the US balance of payments?&#10;A)a credit on the net liquidity balance&#10;B)a debit on the capital account&#10;C)a debit on the trade account&#10;D)a credit on the current account

Accepted Answer

The answer of In a freely?floating exchange rate system,the sale...

Question 16

sale of US treasury bonds by a Frenchman shows up as&#10;A)a credit on the capital account&#10;B)a debit on the trade account&#10;C)a credit on the official reserves account&#10;D)none of the above

Accepted Answer

The answer of sale of US treasury bonds by a...

Question 17

As the real value of the dollar rises,the balance on current account is likely to&#10;A)increase&#10;B)decrease&#10;C)stay the same&#10;D)move with the capital account adjustments factor

Accepted Answer

The answer of As the real value of the dollar...

Question 18

Which one of the following would NOT be considered as part of a nation's capital account?&#10;A)license fees earned by Hewlett Packard&#10;B)purchases by the Chinese of U.S.real estate&#10;C)increases in Brazilian bank deposits in San Francisco banks&#10;D)purchases of U.S.Treasury bonds by the Bank of England

Accepted Answer

The answer of Which one of the following would NOT...

Question 19

Tourism shows up on the ____ account.&#10;A)merchandise&#10;B)current&#10;C)capital&#10;D)official reserves

Accepted Answer

The answer of Tourism shows up on the ____ account.&#10;A)merchandise&#10;B)current&#10;C)capital&#10;D)official...

Question 20

What theory holds that a country's trade deficit worsens just after its currency depreciates because price effects will dominate the effect on volume of imports in the short run?&#10;A)J-curve theory&#10;B)Protectionism theory&#10;C)Official reserve transactions theory&#10;D)Net liquidity balance theory

Accepted Answer

The answer of What theory holds that a country's trade...

Question 21

Suppose Lufthansa buys 10 Boeing 747s for $150 million in 1991,financed by a five?year loan from the US Export?Import Bank.There is a one year grace period on principal and interest payments.Which one of the following would NOT be one of the net impacts of this sale in 1991?

A)a $150 million reduction in the U.S.trade deficit
B)a $150 million reduction in the U.S.capital account surplus
C)a $150 million increase in the U.S.trade deficit
D)zero change in the U.S.balance of payments in 1991

Accepted Answer

The answer of Suppose Lufthansa buys 10 Boeing 747s for...

Question 22

The most likely way to reduce the Japanese trade surplus is to&#10;A)revalue the Japanese yen&#10;B)impose quotas on imports from Japan&#10;C)boost Japanese savings&#10;D)boost Japanese consumption

Accepted Answer

The answer of The most likely way to reduce the...

Question 23

In order to reduce its current?account deficit,the United States would NOT do which of the following?&#10;A)reduce the federal budget deficit&#10;B)raise national product relative to national spending&#10;C)increase savings relative to domestic investment&#10;D)decrease savings relative to domestic investment

Accepted Answer

The answer of In order to reduce its current?account deficit,the...

Question 24

A nation that is running a savings deficit&#10;A)must spend less than it produces&#10;B)will invest domestically more than it saves&#10;C)will invest domestically less than it saves&#10;D)must have a net capital outflow

Accepted Answer

The answer of A nation that is running a savings...

Question 25

If a nation's income exceeds its spending,then which of the following would NOT result?&#10;A)savings will exceed domestic investment&#10;B)the nation must run a current?account surplus&#10;C)the nation must run a capital?account deficit&#10;D)savings will equal domestic investment

Accepted Answer

The answer of If a nation's income exceeds its spending,then...

Deck 5: The Balance of Payments and International Economic Linkages