Question 1

Trade deficits are synonymous with

Accepted Answer

Trade deficits refer to a situation where a country imports more goods and services than it exports, leading to a current account deficit. This means that the country is spending more on foreign goods and services than it is earning from the sale of its own goods and services to other countries. It is not synonymous with balance of payments deficits or capital account deficits, although these can be related. Additionally, it is not indicative of low domestic savings, as a trade deficit can occur even in countries with high rates of savings.

Question 2

Assume that investment increases but gross domestic product (GDP),consumption,and government spending remain constant.Which of the following statements is correct?

Accepted Answer

If investment increases but all other factors remain constant, it will lead to an increase in imports of capital goods and therefore a decrease in net exports. This means that option E is the correct choice as it states that net exports have decreased.

Question 3

The account that tracks payments for real and financial assets between nations and extension of international loans is known as the

Accepted Answer

The answer of The account that tracks payments for real...

Question 4

Traveling abroad to country A,you notice that most goods and services are substantially cheaper there than in the U.S.If prices in country A do not rise,then you can expect

Accepted Answer

If goods and services are substantially cheaper in country A than in the U.S., this means that the purchasing power of country A's currency is greater than the U.S. dollar. As a result, demand for country A's currency will increase, causing it to appreciate in value. This, in turn, will make imports from the U.S. more expensive in country A, bringing prices back towards equilibrium. No intervention by either country's central bank or changes in exchange rates are necessary for this adjustment to occur.

Question 5

How can fiscal policy cause a current account deficit?

Accepted Answer

The answer of How can fiscal policy cause a current...

Question 6

Traveling abroad to country B,you notice that most goods and services are substantially cheaper there than in the United States.If you know that country B's currency was recently pegged to the U.S.dollar,then you can expect

Accepted Answer

When a currency is pegged to the U.S. dollar and goods and services are cheaper, it can lead to inflationary pressures, causing prices to rise in country B.

Question 7

A balance of payments (BOP)is

Accepted Answer

A balance of payments (BOP) is a record of all payments between one nation and the rest of the world, including transactions for goods, services, and financial assets. It measures the flow of money in and out of a country's economy over a specific period of time, usually a year. It is important for policymakers to monitor their country's BOP to ensure that it is in balance and to identify any potential imbalances that could lead to economic instability.

Question 8

How can strong economic growth cause a current account deficit?

Accepted Answer

When there is strong economic growth and increased income, consumers tend to increase their spending on imports, which can lead to a current account deficit. This is because domestic producers may not be able to keep up with the greater demand for goods and services, or they may become more expensive due to increased demand, pushing consumers towards cheaper imports.

Question 9

The record of all payments between one country and the rest of the world is called

Accepted Answer

The balance of payments is a record of all payments between one country and the rest of the world, including both the current account (goods and services) and the capital account (investment). Options A, B, D, and E are related terms but do not encompass the entirety of the balance of payments.

Question 10

A nation's current account is an account that tracks payments for

Accepted Answer

The current account tracks payments for goods and services, current income from investments, and gifts.

Question 11

What are three primary causes for current account deficits?

Accepted Answer

Strong economic growth, lower personal savings rates, and fiscal policy can all lead to current account deficits. Strong economic growth increases imports, while lower personal savings rates and fiscal policy increase consumption, both of which can lead to a deficit.

Question 12

Capital account deficits are synonymous with

Accepted Answer

The answer of Capital account deficits are synonymous with
...

Question 13

Assume that consumption falls but gross domestic product (GDP),investment,and government spending remain constant.What does this say about trade?

Accepted Answer

If consumption falls while investment, government spending, and GDP remain constant, this means that there is a decrease in imports, which leads to an increase in net exports. Therefore, the correct answer is choice A.

Question 14

When more payments are flowing into an account than out of an account,there is a(n)

Accepted Answer

An account surplus occurs when more payments are flowing into an account than out of an account. This is also known as a positive balance. Option A (negative balance) and B (account deficit) both describe a situation where more payments are flowing out of an account than into it, while options C (trade surplus) and E (trade deficit) specifically refer to imbalances in international trade, not account balances in general.

Question 15

Purchasing power parity does not hold perfectly.Which item is NOT part of the explanation for this?

Accepted Answer

Fixed exchange rates would actually facilitate the holding of PPP, as they would ensure that the relative price of currencies is constant over time. The stickiness of prices, shipping costs, tariffs and quotas, and nonidentity of goods and services are all factors that can create deviations from PPP.

Question 16

When more payments are flowing out of an account than into an account,there is a(n)

Accepted Answer

When more payments are flowing out of an account than into it, it results in an account deficit, indicating that the account is spending more than it is receiving.

Question 17

A nation's capital account is an account that tracks payments for

Accepted Answer

The capital account records transactions involving the purchase and sale of real and financial assets, as well as the extension of international loans.

Question 18

The account that tracks all payments for goods and services,current income from investments,and gifts between one nation and the rest of the world is known as the

Accepted Answer

The current account tracks all payments for goods and services, income from investments, and gifts between a nation and the rest of the world.

Question 19

How can domestic savings rates cause a current account deficit?

Accepted Answer

Lower domestic savings rates can lead to a current account deficit because they may necessitate foreign investment to fill the gap between domestic savings and investment needs, leading to an inflow of foreign capital and a corresponding current account deficit.

Question 20

Assume that imports rise and exports are constant.Meanwhile,gross domestic product (GDP),investment,and government spending remain constant.What can be inferred by this?

Accepted Answer

Consumption has increased because imports have risen, which means that more goods and services are being purchased from abroad. This increase in imports must be offset by an increase in consumption, since GDP, investment, and government spending are all constant.

Quiz 33: International Finance