Question 1

Which of the following ensures that balance-of-payments records are always in balance?
A) The sum of squares recording system.
B) The ledger entry model.
C) The double-entry bookkeeping system.
D) The archival records system.
E) The multifactor recording system.

Accepted Answer

As the balance-of-payments record is maintained on a double-entry bookkeeping system, it must always be in balance.

Question 2

Which of the following is the major reason behind the failure of American MNCs to completely dominate the European markets as predicted by Servan-Schreiber?
A) The resurgence of competition worldwide.
B) The uneven distribution of economic power.
C) The restructuring of U.S industries.
D) The decadence of Communism.
E) The dissolution of colonial powers.

Accepted Answer

Servan-Schreiber's prediction did not come true for many reasons, but one of the more important was that American MNCs confronted a resurgence of competition from all over the world.

Question 3

Which of the following strategies was employed by the US to regain its lost market share for capital goods by the late 1990s?
A) Funding the Communist nations.
B) Restructuring its industries to be more lean and mean.
C) Providing financial assistance to the under-developed countries.
D) Raising average U.S. tariffs on more than 20,000 imported goods.
E) Outsourcing its production activities to other countries.

Accepted Answer

In the 1980s, the United States saw its competitive position in capital goods such as computers and machinery erode sharply. But U.S. industry got a wake-up call and responded by restructuring its industries, in essence, "getting lean and mean." By the late 1990s, the United States was once again holding its own in capital goods, particularly with trade surpluses in the high-tech category.

Question 4

Which of the following falls on the minus side of the U.S. balance of payments?
A) Payments to the United States for insurance.
B) Payments of dividends and interest on investments abroad.
C) Return on capital invested abroad.
D) New foreign investments in the United States.
E) Spending by American tourists overseas.

Accepted Answer

On the minus side are the costs of goods imported, spending by American tourists overseas, new overseas investments, and the cost of foreign military and economic aid. A deficit results when international payments are greater than receipts.

Question 5

In the late 1990s, most of the countries of the world saw a slow down in the unprecedented and precipitous growth of their economies. However, _____ remained unaffected by this trend.
A) the United States
B) Germany
C) China
D) Japan
E) France

Accepted Answer

The unprecedented and precipitous growth of the U.S. economy in the late 1990s slowed dramatically in the last few years, and of course dramatically so in 2009. Growth in most of the rest of the world has followed suit, with the exception of China.

Question 6

By the year 1971, the United States was witnessing: By the year 1971, the United States was witnessing:
A) an increase in protectionist federal policies.
B) a positive balance of trade.
C) a sharp rise in domestic and international demand.
D) a huge trade deficit.
E) an economic situation of the magnitude of the Great Depression.

Accepted Answer

Between 1888 and 1971, the United States sold more to other countries than it bought from them; that is, the United States had a favorable balance of trade. By 1971, however, the United States had a trade deficit of $2 billion that grew steadily until it peaked at $160 billion in 1987.

Question 7

Which of the following sections of the balance-of-payments statement is a record of the direct investment, portfolio investment, and short-term movement of cash and technology to and from countries?
A) Current account
B) Capital account
C) Credit account
D) Receivables account
E) Reserves account

Accepted Answer

The capital account is a record of direct investment, portfolio investment, and short-term capital movements to and from countries.

Question 8

A balance-of-payments statement includes three accounts. Two of those accounts are the current account and the capital account. What is the third account found on the balance-of-payments statement?
A) Investment account
B) Receivables account
C) Services account
D) Credit account
E) Reserves account

Accepted Answer

A balance-of-payments statement includes three accounts: the current account, the capital account, and the official reserves account.

Question 9

Which of the following is true regarding the balance-of-payments records?
A) The balance-of-payments accounts do not consider income brought in by non-resident citizens of a country.
B) The fact that assets and liabilities balance does not essentially mean that a nation is in a particularly good financial condition.
C) A balance of payments is not a record of condition.
D) A balance of payments is a determinant of condition.
E) A balance of payments records all the financial transactions of a country since 1980.

Accepted Answer

A nation's balance-of-payments statement records all financial transactions between its residents and those of the rest of the world during a given period of time-usually one year. The fact that assets and liabilities balance does not mean a nation is in particularly good or poor financial condition. A balance of payments is a record of condition, not a determinant of condition.

Question 10

Which of the following presents the correct picture of the outcome of increased world trade after the 1950s, contrary to Servan-Schreiber's prediction?
A) Third World countries were excluded from this economic growth leading to stark imbalances in wealth.
B) The European Union became the center of world trade, taking the position away from the U.S.
C) The U.S. attained a positive balance of trade scenario in the 1950s and maintained it continuously till the Great Recession.
D) Economic power and potential became more evenly distributed among the countries of the world.
E) SDRs and gold lost their utility as the basic medium of financial exchange and most monetary statistics started relating to the U.S dollar.

Accepted Answer

As a result of the expansionary trade measures led by the United States, economic power and potential became more evenly distributed among countries than was the case when Servan-Schreiber warned Europe about U.S. multinational domination.

Question 11

Randall Smithe-Jones believes that protectionism is the only way to save the United Kingdom from outside competitors. He has seen small businesses go bankrupt because cheaper foreign goods have been more popular. The cell-phone manufacturing industry has just started in U.K and Smithe-Jones' company is one of the first to try its hand at cell-phone manufacturing. Which of the following would probably be the argument that Smithe-Jones would use to persuade his government representatives that protectionism is still needed in the U.K.?
A) Protection of an infant industry.
B) The need to keep money at home.
C) Conservation of natural resources.
D) National defense.
E) Maintenance of standard of living.

Accepted Answer

The case tells us that cell-phone manufacturing is a nascent industry in the United Kingdom. Protecting this infant industry would be the most probable reason for seeking protection from foreign competition.

Question 12

The World Bank estimates that five countries whose share of world trade is barely one-third that of the European Union will, by 2020, have a 50 percent higher share than that of the European Union. _____ is one of the countries included in this list.
A) Canada
B) Nigeria
C) Netherlands
D) Indonesia
E) Rhodesia

Accepted Answer

The World Bank estimates that five countries-Brazil, China, India, Indonesia, and Russia-whose share of world trade is barely one third that of the European Union will, by 2020, have a 50 percent higher share than that of the European Union.

Question 13

The _____ account of the balance-of-payments statement is most likely to record all exports and imports of gold, increases or decreases in foreign exchange, and increases or decreases in liabilities to foreign central banks.
A) current
B) capital
C) credit
D) receivables
E) reserves

Accepted Answer

The reserves account is a record of exports and imports of gold, increases or decreases in foreign exchange, and increases or decreases in liabilities to foreign central banks.

Question 14

In general, tariffs weaken:
A) inflationary pressures.
B) special interests' privileges.
C) balance-of-payments positions.
D) government control in economic matters.
E) reciprocal tariffs by other countries.

Accepted Answer

In general, tariffs weaken balance-of-payments positions, supply-and-demand patterns, and international relations (they can start trade wars).

Question 15

Which of the following is a defining characteristic of a balance-of-payments statement?
A) It is a record of the transactions between the government of a country and the private companies.
B) It records all financial transactions between the residents of a country and those of the rest of the world.
C) It records the trade policies of the member nations of the WTO.
D) It is an annual record of the profitable foreign transactions made by a particular country.
E) It is a localfirm's financial statement, where the credits and debits must offset each other.

Accepted Answer

A nation's balance-of-payments statement records all financial transactions between its residents and those of the rest of the world during a given period of time-usually one year.

Question 16

A tax imposed by a government on goods entering at its borders is most accurately termed as a(n) _____.
A) boycott
B) asterisk bill
C) tariff
D) quota
E) writ

Accepted Answer

A tariff is a tax imposed by a government on goods entering at its borders. Tariffs may be used as revenue-generating taxes or to discourage the importation of goods, or for both reasons.

Question 17

Which of the following arguments regarding the need for protectionism is recognized by economists as valid?
A) Need to keep money at home.
B) Encouragement of capital accumulation.
C) Protection of an infant industry.
D) Conservation of natural resources.
E) Maintenance of employment and reduction of unemployment.

Accepted Answer

Countless reasons to maintain government restrictions on trade are espoused by protectionists. Economists in general recognize as valid only the arguments regarding infant industry, national defense, and industrialization of underdeveloped countries.

Question 18

The _____ of the balance-of-payments statement is most likely to record all merchandise exports, imports, and services plus unilateral transfers of funds.
A) current account
B) capital account
C) credit account
D) receivables account
E) reserves account

Accepted Answer

The current account is a record of all merchandise exports, imports, and services plus unilateral transfers of funds.

Question 19

Which of the following falls on the plus side of the U.S. balance of payments?
A) Payments to the United States for insurance.
B) The costs of goods imported.
C) Spending by American tourists overseas.
D) New overseas investments.
E) The cost of foreign military.

Accepted Answer

On the plus side of the U.S. balance of payments are merchandise export sales; money spent by foreign tourists; payments to the United States for insurance, transportation, and similar services; payments of dividends and interest on investments abroad; return on capital invested abroad; new foreign investments in the United States; and foreign government payments to the United States.

Question 20

The system of accounts that records a nation's international financial transactions is most accurately called its:
A) supply chain management system.
B) gross domestic product system.
C) net domestic product payments.
D) balance of payments.
E) net national product systems.

Accepted Answer

A nation's balance-of-payments statement records all financial transactions between its residents and those of the rest of the world during a given period of time-usually one year.

Quiz 2: The Dynamic Environment of International Trade

Which of the following ensures that balance-of-payments records are always in balance?

Which of the following is the major reason behind the failure of American MNCs to completely dominate the European markets as predicted by Servan-Schreiber?

Which of the following strategies was employed by the US to regain its lost market share for capital goods by the late 1990s?

Which of the following falls on the minus side of the U.S. balance of payments?

In the late 1990s, most of the countries of the world saw a slow down in the unprecedented and precipitous growth of their economies. However, _____ remained unaffected by this trend.

By the year 1971, the United States was witnessing: By the year 1971, the United States was witnessing:

Which of the following sections of the balance-of-payments statement is a record of the direct investment, portfolio investment, and short-term movement of cash and technology to and from countries?

A balance-of-payments statement includes three accounts. Two of those accounts are the current account and the capital account. What is the third account found on the balance-of-payments statement?

Which of the following is true regarding the balance-of-payments records?

Which of the following presents the correct picture of the outcome of increased world trade after the 1950s, contrary to Servan-Schreiber's prediction?

The World Bank estimates that five countries whose share of world trade is barely one-third that of the European Union will, by 2020, have a 50 percent higher share than that of the European Union. _____ is one of the countries included in this list.

The _____ account of the balance-of-payments statement is most likely to record all exports and imports of gold, increases or decreases in foreign exchange, and increases or decreases in liabilities to foreign central banks.

In general, tariffs weaken:

Which of the following is a defining characteristic of a balance-of-payments statement?

A tax imposed by a government on goods entering at its borders is most accurately termed as a(n) _____.

Which of the following arguments regarding the need for protectionism is recognized by economists as valid?

The _____ of the balance-of-payments statement is most likely to record all merchandise exports, imports, and services plus unilateral transfers of funds.

Which of the following falls on the plus side of the U.S. balance of payments?

The system of accounts that records a nation's international financial transactions is most accurately called its: