Question 1

Which of the following is a defining characteristic of a balance-of-payments statement?
A) It is a record of the domestic transactions between the government of a country and the private companies in that country.
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 financial statement in which the credits must exceed the debits.

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 2

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 3

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 4

Which of the following strategies was employed by the United States 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) Decreasing its exports and increasing its imports
D) Raising average U.S. tariffs on more than 20,000 imported goods by 60%
E) Provoking increased protectionism from 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 5

In general, tariffs weaken:
A) inflationary pressures.
B) special interests' privileges.
C) balance-of-payments positions.
D) government control in economic matters.
E) the number of 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 6

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) Industrialization of underdeveloped countries
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, but economists in general recognize as valid only the arguments regarding infant industry, national defense, and industrialization of underdeveloped countries.

Question 7

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 have been excluded from this economic growth leading to stark imbalances in wealth.
B) The European Union has become the center of world trade, taking the position away from the United States.
C) The United States has continuously maintained the positive balance of trade it attained during the 1950s.
D) Economic power and potential has become more evenly distributed among the countries of the world.
E) SDRs and gold have lost their utility as the basic medium of financial exchange and most monetary statistics have 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 has become more evenly distributed among countries than was the case when Servan-Schreiber warned Europe about U.S. multinational domination.

Question 8

In the last few years, most of the countries of the world saw a dramatic slowdown in the growth of their economies with the exception of _____.
A) the United States
B) Spain
C) China
D) Greece
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 9

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) Zimbabwe

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 10

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

The system of accounts that records a nation's international financial transactions is called its balance of payments. 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 11

Which of the following statements is true of the balance-of-payments records?
A) The balance-of-payments accounts do not consider income brought in by nonresident citizens of a country.
B) The fact that assets and liabilities balanced in a balance-of-payments statement does not mean that a nation is in a particularly good financial condition.
C) A balance of payments is not a record of the financial condition of a nation.
D) A balance of payments is a good determinant of the financial condition of a nation.
E) A balance-of-payments record is maintained on a single-entry bookkeeping system.

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 in a balance-of-payments statement balance does not mean that 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 12

By the year 1971, the United States was witnessing a(n):
A) increase in protectionist federal policies.
B) positive balance of trade.
C) sharp rise in domestic and international demand for all its goods.
D) huge trade deficit.
E) 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 13

Which of the following ensures that balance-of-payments records are always in balance?
A) Sum of squares recording system
B) Bank reconciliation system
C) Double-entry bookkeeping system
D) Archival records system
E) Multifactor recording system

Accepted Answer

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

Question 14

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 of the U.S. balance of payments 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 15

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 16

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) Official reserves account

Accepted Answer

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

Question 17

The _____ 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 account
B) capital account
C) credit account
D) receivables account
E) reserves account

Accepted Answer

The reserves account of the balance-of-payments statement 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 18

Randall, a protectionist, has seen several small businesses go bankrupt because they were unable to compete with the cheaper prices of goods provided by foreign companies. The cell-phone manufacturing industry has just started in the United Kingdom, and Randall's company is one of the first to try its hand at cell-phone manufacturing. Which of the following arguments is most likely to be used by Randall to persuade his government to restrict the import of foreign cell phones from foreign companies?
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 19

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 for U.S. businesses from all over the world
B) The elimination of import taxes in the European countries
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 20

Which of the following accounts 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 of the balance-of-payments statement is a record of direct investment, portfolio investment, and short-term capital movements to and from countries.

Quiz 2: The Dynamic Environment of International Trade

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

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

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

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

In general, tariffs weaken:

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

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

In the last few years, most of the countries of the world saw a dramatic slowdown in the growth of their economies with the exception of _____.

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

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

By the year 1971, the United States was witnessing a(n) :

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

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

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

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?

The _____ 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.

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 accounts 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?