Question 1

The J-curve adjustment path for trade balance adjustments assumes that ________ products are predominantly priced in the domestic currency and that ________ products are predominantly priced in the foreign currency

Accepted Answer

The J-curve adjustment path assumes that a country's exports are predominantly priced in the foreign currency while its imports are predominantly priced in the domestic currency. Therefore, the correct choice is D, which states that the export products are predominantly priced in the foreign currency and the import products are predominantly priced in the domestic currency.

Question 2

The United States experienced a balance of trade ________ during the 1980s and a balance of trade ________ during the 1990s.

Accepted Answer

The United States experienced a trade deficit during both the 1980s and the 1990s, as imports exceeded exports in both decades.

Question 3

Which of the following is not a component of the financial accounts?

Accepted Answer

The financial accounts consist of direct investment abroad, direct investment domestic, portfolio investment, and other investments. Goods imports are a component of the current account, which tracks transactions related to the trade of goods and services.

Question 4

Which of the following statements about the balance of payments is not true?

Accepted Answer

All the statements provided are true regarding the balance of payments.

Question 5

Which of the following does NOT represent a possible mechanism by which capital can be moved from country to country?

Accepted Answer

The answer of Which of the following does NOT represent...

Question 6

The immediate impact on the balance of trade (BOT) for a country in deficit when there is an immediate devaluation of it's currency is likely to be an even larger BOT deficit than prior to devaluation.

Accepted Answer

When a country devalues its currency, its exports become cheaper and imports become more expensive. This is expected to increase exports and reduce imports, leading to an improvement in the balance of trade. However, in the short term, the country will have to pay more for imports, hurting its balance of trade. Additionally, other countries may retaliate with their own devaluations or trade barriers, further exacerbating the deficit. Therefore, it is likely that the immediate impact on the balance of trade for a country in deficit after devaluation will be an even larger deficit.

Question 7

The beauty of the J-curve adjustment path for trade balance adjustments is that the process is very quick, typically taking only a month or so to complete.

Accepted Answer

The J-curve adjustment path for trade balance adjustments is not a quick process and can take several months or even years to complete. It involves an initial worsening of the trade balance followed by gradual improvements as the economy adjusts to new relative prices.

Question 8

The time from 1971 to today has predominately used a regime of variable exchange rates. It has also seen a decrease in capital mobility.

Accepted Answer

The statement is false. The time from 1971 to today has predominately used a regime of fixed exchange rates until the 1980s, after which it switched to a regime of variable exchange rates. Additionally, there has been an increase in capital mobility during this time period, facilitated by advancements in technology and globalization.

Question 9

________ is an entry in the balance of payments measuring the difference between the monetary value of merchandise exports and merchandise imports.

Accepted Answer

Balance of trade measures the difference between the monetary value of merchandise exports and merchandise imports.

Question 10

Which of the following is the best definition of money laundering?

Accepted Answer

Money laundering is the process of disguising the proceeds of illegal activity so that they appear to be derived from a legitimate source. This often involves the purchase of assets that can be easily moved across borders and then managed in a way that conceals the true ownership of the funds. This definition best fits option C.

Question 11

The largest single component of the United States current account is ________.

Accepted Answer

Goods (merchandise) imports and exports make up the largest percentage of the United States' current account. In 2019, goods exports were $1.65 trillion and goods imports were $2.57 trillion, resulting in a trade deficit of $925 billion.

Question 12

The era between 1880 and 1914, when the gold standard was in use, was characterized by increasing capital mobility.

Accepted Answer

During this time period, the gold standard facilitated international trade and investment, leading to increasing capital mobility.

Question 13

Assume that a country is experiencing a balance of trade deficit and then suffers a rapid depreciation of it's currency. J-curve theory suggests that the trade balance will adjust in three distinct periods in the following order:

Accepted Answer

The answer of Assume that a country is experiencing a...

Question 14

Portfolio investments are transactions that involve long-term financial assets and affect the transfer of control.

Accepted Answer

Portfolio investments typically involve short-term financial assets and do not usually result in the transfer of control over the entities in which the investments are made.

Question 15

An excess of merchandise exports over merchandise imports results in a balance of trade deficit.

Accepted Answer

An excess of merchandise exports over merchandise imports results in a balance of trade surplus, not a deficit. A balance of trade deficit occurs when a country imports more merchandise than it exports.

Question 16

It is possible that the J-curve path for BOT adjustments may be be elongated or even inapplicable if exports are NOT predominately priced in the domestic currency and/or imports are NOT predominately priced in the foreign currency.

Accepted Answer

The J-curve effect is based on the assumption that a depreciation of a country's currency leads to an initial deterioration of the trade balance, followed by an improvement over time. However, this effect may be weakened or even not observable if exports and imports are not predominantly priced in the domestic and foreign currencies, respectively. If most trade is conducted in a third currency, the exchange rate changes may not have a direct impact on the competitiveness of the traded goods and services, and the adjustment of the trade balance may take longer or follow a different pattern.

Question 17

The BOP should always balance.

Accepted Answer

It is not necessary for the BOP (Balance of Payments) to always balance. The BOP is a record of a country's economic transactions with the rest of the world, and it consists of two main components: the current account and the capital account. While it is desirable for the BOP to balance in the long run, it is not always possible or necessary for it to be in balance at any given moment. For example, a country may have a temporary deficit in the current account due to increased imports or a decline in exports, but this deficit could be offset by a surplus in the capital account. In addition, some economists argue that a small deficit in the current account can be beneficial for a country, as it allows it to borrow money from abroad and invest in productive assets.

Question 18

The ________ is the difference between merchandise imports and exports and a measure of a country's international trade in goods and services.

Accepted Answer

The answer of The ________ is the difference between merchandise...

Question 19

The United States, as of May 2007, had the largest official foreign exchange reserves of any nation.

Accepted Answer

As of May 2007, China held the largest official foreign exchange reserves, surpassing the United States.

Question 20

The J-curve adjustment path for trade balance adjustments assumes that export products are predominantly priced in the ________ currency and that import products are predominantly priced in the ________ currency.

Accepted Answer

The answer of The J-curve adjustment path for trade balance...

Quiz 4: The Balance of Payments

The J-curve adjustment path for trade balance adjustments assumes that products are predominantly priced in the domestic currency and that products are predominantly priced in the foreign currency

The United States experienced a balance of trade during the 1980s and a balance of trade during the 1990s.