Question 1

Scenario: The table below shows the payments received from foreigners by the residents of Country Y and the payments made to foreigners by the residents of Country Y during a certain year.
 
-Refer to the scenario above.Country Y's net factor payments from abroad equal ________.

Accepted Answer

Country Y's net factor payments from abroad are equal to the difference between its factor income received from abroad and its factor income paid to abroad. In this case, Country Y's factor income received from abroad is $25 billion and its factor income paid to abroad is $5 billion. Therefore, Country Y's net factor payments from abroad are $25 billion - $5 billion = $20 billion.

Question 2

If foreigners held U.S.assets worth $200 billion during a certain year and the current account balance for that year was −$189 billion,the total volume of foreign assets held domestically was worth ________.

Accepted Answer

The current account balance is the difference between exports and imports, plus net income flows and net unilateral transfers. In this case, the negative value of the current account balance (-$189 billion) indicates that the U.S. is importing more than it is exporting and making net payments to foreign countries.

Foreigners holding U.S. assets worth $200 billion implies that foreign investment in U.S. assets increased by $200 billion during the year.

Thus, the total volume of foreign assets held in the U.S. is:

Foreign assets = U.S. assets held by foreigners + U.S. liabilities to foreigners
Foreign assets = $200 billion + (-$189 billion)
Foreign assets = $11 billion

Therefore, the total volume of foreign assets held domestically was worth $211 billion.

Question 3

The country of Avalon has a current account surplus of $50 billion.This implies that ________.

Accepted Answer

A current account surplus means that Avalon's exports exceed its imports by $50 billion. This surplus indicates that Avalon is earning more from its exports than it is spending on imports, resulting in a positive balance of trade.

Question 4

Scenario: There are two countries-Country X and Country Y-that trade only with each other. During a particular year, the residents of Country X purchased buildings worth $10 billion in Country Y. None of the other transactions between the two countries during that year involved the purchase or sale of assets.
-Refer to the scenario above.The purchase of assets by the residents of Country X would lead to a ________ in Country X.

Accepted Answer

The purchase of buildings in Country Y by residents of Country X represents a capital outflow from Country X, which would be recorded in the financial account of the balance of payments. Since Country X is purchasing assets in Country Y, it means money is flowing out of Country X to Country Y, leading to a financial account deficit for Country X.

Question 5

Suppose that the United States sends foreign aid to Brazil.The direct consequence is that ________.

Accepted Answer

Foreign aid is recorded as a transfer in the current account, so sending aid decreases the U.S. current account balance.

Question 6

A current account deficit occurs when a country's ________,all else equal.

Accepted Answer

A current account deficit occurs when a country's net exports are negative, meaning that it is importing more than it is exporting. This results in more money leaving the country than coming in, leading to a deficit.

Question 7

The current account is the sum of ________.

Accepted Answer

The current account measures the flow of goods, services, income, and transfers into and out of a country. It includes net exports (exports minus imports), net factor income from abroad (income earned by domestic factors of production minus income earned by foreign factors of production), and net transfers from abroad (gifts, grants, and other unrequited transfers).

Question 8

Scenario: There are two countries-Country X and Country Y-that trade only with each other. During a particular year, the residents of Country X purchased buildings worth $10 billion in Country Y. None of the other transactions between the two countries during that year involved the purchase or sale of assets.
-Refer to the scenario above.Based on this information,it can be concluded that ________.

Accepted Answer

Since the residents of Country X bought buildings worth $10 billion from Country Y, this is a current account transaction involving the purchase of goods (buildings) from Country Y. As a result, Country X experienced a current account deficit (since they spent $10 billion more than they earned from trade with Country Y). However, since none of the other transactions between the countries involved the purchase or sale of assets, it can be concluded that Country X did not have any financial account transactions with Country Y (i.e. no investment flows in or out). Therefore, the overall balance of payments for Country X must have been a current account surplus (offsetting the deficit from the building purchases).

Question 9

Scenario: There are two countries-Country X and Country Y-that trade only with each other. During a particular year, the residents of Country X purchased buildings worth $10 billion in Country Y. None of the other transactions between the two countries during that year involved the purchase or sale of assets.
-Refer to the scenario above.The purchase of assets by the residents of County X would lead to a ________ in County Y.

Accepted Answer

The purchase of buildings by the residents of Country X from Country Y involves a transfer of assets from Country Y to Country X, resulting in a financial account surplus for Country Y. This does not necessarily reflect a trade deficit or a trade surplus between the two countries, as those would be determined by the overall balance of trade in goods and services. However, since no other transactions of assets were involved, the financial account surplus would equal the value of the assets purchased by Country X.

Question 10

If a UK consumer buys a camera from a manufacturer in the United States,everything else remaining unchanged,________.

Accepted Answer

When a UK consumer buys a camera from a US manufacturer, it involves importing goods from the US which increases the UK's import expenditure and simultaneously increases the net exports of the US. Therefore, option A is correct. Option B is incorrect because there won't necessarily be a surplus in the financial account of the US just because a UK consumer buys a camera. Option C is also incorrect because net factor payments involve income earned from foreign investments or foreign income earned by domestic residents. Buying a camera doesn't affect this. Lastly, option D is incorrect because a UK consumer buying a camera won't necessarily cause a deficit in the financial account of the UK.

Question 11

Scenario: The table below shows the payments received from foreigners by the residents of Country Y and the payments made to foreigners by the residents of Country Y during a certain year.
 
-Refer to the scenario above.Country Y's net payments to foreigners equal ________.

Accepted Answer

The answer of Scenario: The table below shows the payments...

Question 12

Steve is a professor of economics at New York State University.He worked in India for a month.The income that he earned from India will be reported as ________ in the U.S.current account.

Accepted Answer

The income that Steve earned in India will be reported as a factor payment in the U.S. current account. Factor payments include income from foreign investments, such as profits, dividends, and wages earned by individuals working abroad.

Question 13

Scenario: The table below shows the payments received from foreigners by the residents of Country Y and the payments made to foreigners by the residents of Country Y during a certain year.
 
-Refer to the scenario above.Country Y's net exports equal ________.

Accepted Answer

Net exports can be calculated as the difference between payments received from foreigners (exports) and payments made to foreigners (imports). In this case, exports equal $68 billion and imports equal $86 billion. Therefore, net exports equal $68 billion - $86 billion = -$18 billion. The negative sign indicates that Country Y has a trade deficit.

Question 14

Mike lives and works as a musician in the United States.However,he sometimes plays in concerts in foreign countries.The money he earns from these concerts are considered ________ in the U.S.current account.

Accepted Answer

The money Mike earns from playing concerts abroad is considered "factor payments from foreigners" because it is income earned by a U.S. resident from providing a service to foreigners.

Question 15

Scenario: The table below shows the payments received from foreigners by the residents of Country Y and the payments made to foreigners by the residents of Country Y during a certain year.
 
-Refer to the scenario above.Which of the following is likely to be true in this case?

Accepted Answer

The table shows that Country Y received more payments from foreigners than it made to foreigners, indicating a surplus in its financial account. Option A is incorrect as there is a surplus instead of a deficit. Option C is not necessarily true based on the information provided in the table. Option D is unrelated to the information provided.

Question 16

A country has a current account deficit of −$100 billion.This implies that ________.

Accepted Answer

Current account deficit means that a country's imports exceed its exports, hence the correct option is D. Option A is incorrect as it suggests the opposite scenario, while options B and C refer to other components of the current account (net factor payments and net transfers) which may or may not be positive in this case.

Question 17

________ refers to the increase in domestic assets held by foreigners minus the increase in foreign assets held domestically.

Accepted Answer

The financial account in a country's balance of payments records transactions that involve the purchase or sale of assets. When there's an increase in domestic assets held by foreigners minus the increase in foreign assets held domestically, it reflects changes in the financial account, capturing investments in and out of the country.

Question 18

A current account surplus occurs when a country's ________,all else equal.

Accepted Answer

A current account surplus occurs when a country's net exports (exports minus imports) are positive, meaning it is exporting more than it is importing. A current account deficit occurs when net exports are negative, indicating the country is importing more than it is exporting. Net national savings and net factor income from abroad are not directly related to current account surplus/deficit.

Question 19

Scenario: The table below shows the payments received from foreigners by the residents of Country Y and the payments made to foreigners by the residents of Country Y during a certain year.
 
-Refer to the scenario above.Based on this information,we can conclude that Country Y has a ________.

Accepted Answer

A current account deficit occurs when a country's total imports of goods, services, and transfers are greater than its total export of goods, services, and transfers, indicating that Country Y is spending more on foreign trade than it is earning.

Question 20

Scenario: There are two countries-Country X and Country Y-that trade only with each other. During a particular year, the residents of Country X purchased buildings worth $10 billion in Country Y. None of the other transactions between the two countries during that year involved the purchase or sale of assets.
-Refer to the scenario above.Based on this information,it can be concluded that ________.

Accepted Answer

The answer of Scenario: There are two countries-Country X and...

Quiz 14: Macroeconomics and International Trade

Scenario: The table below shows the payments received from foreigners by the residents of Country Y and the payments made to foreigners by the residents of Country Y during a certain year. -Refer to the scenario above.Country Y's net factor payments from abroad equal ________.