Question 1

If the Bank of Canada buys $3 billion worth of Japanese yen,$4 billion of German marks,and $2 billion of French francs,and sells $5 billion of British pounds,how does this affect the official settlements balance?
A)falls by $4 billion
B)rises by $4 billion
C)rises by $9 billion
D)falls by $5 billion

Accepted Answer

The official settlements balance rises by $4 billion because the Bank of Canada is buying a total of $9 billion in foreign currencies (yen, marks, and francs) and selling $5 billion in British pounds, resulting in a net increase of $4 billion in foreign reserves.

Question 2

If France has a trade deficit,then
A)imports into France exceed exports from France.
B)exports from France exceed imports into France.
C)imports into Canada from France exceed exports from Canada into France.
D)imports into France from Canada exceed exports from France into Canada.

Accepted Answer

A trade deficit occurs when a country's imports exceed its exports. Therefore, option A is the correct answer as it states that imports into France exceed exports from France.

Question 3

Which of the following statements is true?
A)The world as a whole has a current account surplus.
B)The world as a whole has a current account balance.
C)The world as a whole has a balance of payment surplus.
D)The world as a whole has a current account deficit.

Accepted Answer

A current account deficit implies that a country is importing more goods, services, and investments than it is exporting, and the world as a whole cannot have a surplus and deficit at the same time. Additionally, a balance of payment surplus would mean that the world is receiving more money than it is spending, which is not the case, making option D the correct answer.

Question 4

Canada's balance of payment accounts
A)are a record of all Canadian international transactions.
B)are part of the national income accounting.
C)show a flow of funds into Canada as credit and the flow of funds out of Canada as debit.
D)all of the above.

Accepted Answer

The balance of payment accounts are a comprehensive record of all international transactions involving Canada, including trade flows, investment income, and transfer payments. They are part of the national income accounting system and show the flow of funds into Canada as credits and out of Canada as debits. Therefore, option D - all of the above - is the correct choice.

Question 5

The official settlements balance equals
A)the sum of the current account and the capital account.
B)the current account minus net unilateral transfers.
C)net investment income from abroad.
D)the net increase in a country's official reserve assets.

Accepted Answer

The official settlements balance is the sum of the current account balance and the capital account balance, adjusted for official reserve transactions. Thus, the net increase in a country's official reserve assets is the correct choice, as it represents the difference between inflows and outflows of official reserve assets. The other options do not take into account this adjustment for official reserve transactions.

Question 6

The world as a whole has a current account deficit because
A)some countries export less than they import.
B)there are statistical discrepancies.
C)the United States and China have current account deficit.
D)income from assets held abroad is misreported.

Accepted Answer

The answer of The world as a whole has a...

Question 7

The current account balance consists of
A)the trade balance plus the services balance.
B)net exports of goods and services,minus net unilateral transfers.
C)net exports of goods and services,plus investment income from abroad,plus net unilateral transfers.
D)net exports of goods and services,plus investment income from abroad,plus net unilateral transfers,minus the capital account balance.

Accepted Answer

The current account balance is the sum of net exports of goods and services, investment income from abroad, and net unilateral transfers. It does not include the capital account balance.

Question 8

If a country's merchandise exports exceed its merchandise imports,
A)it has a trade surplus.
B)it has a trade deficit.
C)it has a current account surplus.
D)it has a current account deficit.

Accepted Answer

A country with merchandise exports exceeding its merchandise imports has an excess in its trade, indicating a trade surplus. Choice A is the only option that accurately describes this scenario. A current account surplus indicates a positive net flow of all transactions, including merchandise and services, whereas a current account deficit indicates a negative net flow of all transactions. Merchandise exports alone cannot determine current account balances.

Question 9

If a French company sells 1000 gallons of Perrier to a Canadian company at 25 francs per gallon and uses the money to buy stock in a Spanish cork company,how does this affect the French balance of payments accounts?
A)debit: capital account;credit: merchandise trade
B)debit: merchandise trade;credit: capital account
C)debit: net investment income from abroad;credit: capital account
D)debit: merchandise trade;credit: net investment income from abroad

Accepted Answer

The sale of Perrier is an export, which is a credit to the merchandise trade account. The purchase of stock is an investment abroad, which is a debit to the capital account.

Question 10

The merchandise trade balance is a country's
A)exports of goods.
B)net exports of goods.
C)exports of goods and services.
D)net exports of goods and services.

Accepted Answer

The merchandise trade balance only includes the trade of physical goods, so it is the net exports of goods (exports minus imports). Therefore, the correct answer is B. A includes only exports, C includes both goods and services, and D includes net exports of both goods and services.

Question 11

The difference between the current account balance and net exports is
A)the capital account.
B)net unilateral transfers plus net factor payments from abroad.
C)adjustments in net foreign assets.
D)income receipts from foreign assets.

Accepted Answer

The difference between the current account balance and net exports is accounted for by net unilateral transfers (such as remittances) plus net factor payments from abroad (such as income from investments minus payments to foreign investors). These components, along with net exports, make up the current account balance.

Question 12

If a Canadian company imports 10 Toyotas from Japan at $15,000 each,and the Japanese company buys airline tickets on a Canadian airline with the money,how does this affect the Canadian balance of payments accounts?
A)debit: merchandise trade;credit: capital account
B)debit: capital account;credit: merchandise trade
C)debit: merchandise trade;credit: services
D)debit: services;credit: merchandise trade

Accepted Answer

The import of Toyotas results in a debit to the merchandise trade account, while the purchase of airline tickets by the Japanese company results in a credit to the services account.

Question 13

Suppose a wealthy Saudi Arabian prince donates 2000 camels to the San Diego Zoo.The Canadian trade balance ________ and the current account balance ________.
A)falls;rises
B)rises;rises
C)is unchanged;is unchanged
D)falls;is unchanged

Accepted Answer

The donation of camels by a Saudi Arabian prince has no direct impact on the Canadian trade balance or current account balance. Therefore, there is no change and the balances remain unchanged.

Question 14

If Canada donates footballs to Japan,how is the transaction recorded on the Canadian balance of payments accounts?
A)debit: merchandise trade;credit: capital account
B)debit: capital account;credit: merchandise trade
C)debit: net unilateral transfers;credit: merchandise trade
D)debit: merchandise trade;credit: net unilateral transfers

Accepted Answer

The answer of If Canada donates footballs to Japan,how is...

Question 15

Suppose the current account shows debits of $4.7 billion and credits of $5.3 billion.The current account balance is ________,and the capital account balance is ________.
A)+$0.6 billion;-$0.6 billion
B)+$0.6 billion;+$0.6 billion
C)-$0.6 billion;-$0.6 billion
D)-$0.6 billion;+$0.6 billion

Accepted Answer

The current account balance is calculated as credits minus debits, which in this case is $5.3 billion - $4.7 billion = $0.6 billion surplus. The capital account balance is the opposite of the current account balance, so it is -$0.6 billion. Option A is the only choice that has both of these values.

Question 16

A capital account surplus necessarily implies
A)a balance of payments surplus.
B)a current account surplus.
C)a current account deficit.
D)an increase in the nation's official reserve assets.

Accepted Answer

A capital account surplus indicates that a country is receiving more capital inflows than outflows, which typically corresponds to a current account deficit, as the balance of payments must balance overall.

Question 17

Which of the following would be part of the nation's capital account?
A)a nightclub show seen by a Canadian in Mexico City
B)a dividend from a British equity owned by a Canadian
C)a payment to the Philippine government for the use of military bases in their country
D)one hundred shares of British Petroleum stock purchased by a Canadian

Accepted Answer

The capital account records transactions involving the purchase and sale of assets, such as stocks and bonds. The purchase of shares by a Canadian in a foreign company like British Petroleum is a capital account transaction.

Question 18

If a Canadian firm buys stereos from a Japanese firm and the Japanese firm uses the dollars it gets to buy Canadian Treasury bonds,what items are recorded in the Canadian balance of payments accounts?
A)credit the trade account;credit the capital account
B)credit the trade account;debit the capital account
C)debit the trade account;debit the capital account
D)debit the trade account;credit the capital account

Accepted Answer

The purchase of stereos by the Canadian firm is an import, which is recorded as a debit in the trade account. The Japanese firm's purchase of Canadian Treasury bonds is an inflow of capital, recorded as a credit in the capital account.

Question 19

Which of the following would be part of the nation's current account?
A)an old house purchased by a Canadian in Croatia
B)the purchase of a Canadian Treasury bond by a foreigner
C)the interest a Canadian earns on a British bond
D)a factory built by the Japanese in Canada

Accepted Answer

The current account is a measure of a country's international trade where the balance of trade is the difference between a country's export earnings and import expenditure. Option C represents interest earned by Canadians from foreign bonds, which is part of the nation's current account.

Answer: A
 Option A represents a Canadian purchasing an old house in Croatia, which would be included in the nation's current account in the form of a service account.

Answer: D
 Option D represents a factory built by a foreign country in Canada, which would be included in the nation's capital account, which measures investment flows between countries. Option B represents a domestic transaction of a Canadian buying a Treasury bond, which wouldn't be included in the current account as it doesn't involve international trade.

Question 20

If all international factor payment flows are investment income,then net investment income from abroad equals
A)net exports.
B)the current account balance.
C)the trade balance.
D)net factor payments from abroad.

Accepted Answer

The answer of If all international factor payment flows are...

Quiz 5: Saving and Investment in the Open Economy

If the Bank of Canada buys $3 billion worth of Japanese yen,$4 billion of German marks,and $2 billion of French francs,and sells $5 billion of British pounds,how does this affect the official settlements balance?

If France has a trade deficit,then

Which of the following statements is true?

Canada's balance of payment accounts

The official settlements balance equals

The world as a whole has a current account deficit because

The current account balance consists of

If a country's merchandise exports exceed its merchandise imports,

If a French company sells 1000 gallons of Perrier to a Canadian company at 25 francs per gallon and uses the money to buy stock in a Spanish cork company,how does this affect the French balance of payments accounts?

The merchandise trade balance is a country's

The difference between the current account balance and net exports is

If a Canadian company imports 10 Toyotas from Japan at $15,000 each,and the Japanese company buys airline tickets on a Canadian airline with the money,how does this affect the Canadian balance of payments accounts?

Suppose a wealthy Saudi Arabian prince donates 2000 camels to the San Diego Zoo.The Canadian trade balance and the current account balance .

If Canada donates footballs to Japan,how is the transaction recorded on the Canadian balance of payments accounts?

Suppose the current account shows debits of $4.7 billion and credits of $5.3 billion.The current account balance is ,and the capital account balance is .

A capital account surplus necessarily implies

Which of the following would be part of the nation's capital account?

If a Canadian firm buys stereos from a Japanese firm and the Japanese firm uses the dollars it gets to buy Canadian Treasury bonds,what items are recorded in the Canadian balance of payments accounts?

Which of the following would be part of the nation's current account?

If all international factor payment flows are investment income,then net investment income from abroad equals