Question 1

If a French company exports $2 million of machinery to Italy and French tourists spend $2 million at Italian beaches,the French merchandise trade balance ________ ,and the French capital and financial account balance ________.

Accepted Answer

B

Question 2

If the Federal Reserve buys $3 billion worth of Japanese yen and sells $5 billion of euros,how does this affect the official settlements balance?

Accepted Answer

When the Federal Reserve buys $3 billion worth of Japanese yen, it increases the supply of dollars in the market and therefore lowers its value. Conversely, selling $5 billion of euros decreases the supply of euros in the market and raises their value. This will lead to a decrease in the official settlements balance by $2 billion ($5 billion - $3 billion = $2 billion).

Question 3

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

Accepted Answer

D

Question 4

If a U.S.firm buys tulips from a Dutch firm and the Dutch firm uses the dollars it gets to buy U.S.stocks,the U.S.trade balance ________ and the U.S.capital and financial account ________.

Accepted Answer

When the Dutch firm uses the dollars to buy U.S. stocks, the demand for the U.S. stocks will increase, causing the price of the stocks to rise. This will result in an increase in the U.S. capital and financial account. However, the U.S. trade balance will fall because the U.S. is buying more goods (tulips) from the Netherlands than it is selling to them.

Question 5

The current account balance consists of

Accepted Answer

The current account balance includes the net exports of goods and services, plus investment income from abroad and net unilateral transfers, which is calculated as the sum of the merchandise trade balance, the services balance, net investment income, and net unilateral transfers. Therefore, choice C is the correct answer.

Question 6

If a Japanese company sells 200 VCRs to a French company and uses the money to buy U.S.government bonds,the Japanese merchandise trade balance ________,and the Japanese capital and financial account balance ________.

Accepted Answer

Selling 200 VCRs to a French company would result in an increase in the Japanese merchandise trade balance, as they are exporting goods. However, using the money to buy U.S. government bonds would result in a decrease in the Japanese capital and financial account balance, as they are investing in a foreign country. Therefore, the correct answer is option B, as the trade balance would rise and the capital and financial account balance would fall.

Question 7

If the United States donates footballs to Japan,how is the transaction recorded on the U.S.balance of payments accounts?

Accepted Answer

The donation of footballs is a unilateral transfer, which is recorded as a debit in net unilateral transfers, and the export of goods (footballs) is recorded as a credit in merchandise trade.

Question 8

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

Accepted Answer

The current account includes transactions like trade in goods and services, income from investments, and current transfers. The interest an American earns on a British bond is considered income from investments, which is part of the current account.

Question 9

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

Accepted Answer

The import of Toyotas is recorded as a debit in the merchandise trade account, and the purchase of airline tickets by the Japanese company is recorded as a credit in the services account.

Question 10

If the United States sells computers to Russia,and uses the proceeds to buy shares of stock in Russian companies,the U.S.trade balance ________ and the U.S.capital and financial account balance ________.

Accepted Answer

Selling computers to Russia will increase U.S. exports and cause the trade balance to rise. Using the proceeds to buy shares of stock in Russian companies will increase U.S. investments abroad and cause the U.S. capital and financial account balance to fall. Therefore, the correct answer is B.

Question 11

Net exports of goods are known as

Accepted Answer

Net exports of goods are specifically referred to as the "merchandise trade balance," which is a component of the balance of payments. The current account includes the balance of trade in goods and services, as well as other current transactions like income receipts and remittances. The capital and financial account records transactions involving capital transfers, financial investments, and the acquisition or disposal of non-produced, non-financial assets.

Question 12

Suppose a wealthy Canadian donates $10 million to charities in Mexico.Mexican net exports ________ and the current account balance ________.

Accepted Answer

The answer of Suppose a wealthy Canadian donates $10 million...

Question 13

If a country's merchandise exports exceed its merchandise imports it has a

Accepted Answer

A trade surplus occurs when a country's merchandise exports exceed its merchandise imports, meaning they have more goods going out than coming in. A trade deficit, on the other hand, occurs when a country's merchandise imports exceed its merchandise exports. The current account includes not only the merchandise trade balance but also the balance of services, investment income, and unilateral transfers, so it is possible for a country to have a trade surplus but still have a current account deficit if it has a deficit in these other areas.

Question 14

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

Accepted Answer

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

Question 15

If a French company exports $2 million of machinery to Italy and French tourists spend $2 million at Italian beaches,the Italian current account balance ________,and the Italian capital and financial account balance ________.

Accepted Answer

The current account balance is the sum of the balance of trade (exports minus imports of goods and services) and net income (such as interest and dividends) from abroad. In this case, the machinery export and tourism spending are both part of the balance of trade, and cancel out each other's effect. Therefore, the current account balance remains unchanged. The capital and financial account balance measures the inflow and outflow of investment capital, such as foreign direct investment and portfolio investment. The given information does not provide any indication of investment flows, so the capital and financial account balance also remains unchanged.

Question 16

The official settlements balance equals

Accepted Answer

The official settlements balance represents the net increase in a country's official reserve assets, which includes foreign exchange reserves and special drawing rights (SDRs) held by the central bank. Therefore, option D is the correct answer. Option A is incorrect because it includes both the current account and the capital and financial account, but it does not necessarily represent a country's official reserve assets. Option B is incorrect because it represents the current account minus net unilateral transfers, which is not the same as the official settlements balance. Option C is incorrect because it represents only net investment income, which is only one component of the official reserve assets.

Question 17

A country has a current account surplus if

Accepted Answer

A current account surplus means that the country is exporting more than it is importing. To calculate this, we subtract imports from exports, and if the result is positive, we have a surplus. Net income from foreign assets and net unilateral transfers are not included in this calculation, so we assume they have a value of zero. Choice B refers only to net exports of services and goods, and does not include income from foreign assets or unilateral transfers. Choice C refers only to income from foreign assets and does not consider trade in goods and services. Choice D refers to capital flows, and not specifically to trade.

Question 18

A negative value for the U.S.official reserve assets line in the balance of payments accounts means that

Accepted Answer

The answer of A negative value for the U.S.official reserve...

Question 19

If France has a trade deficit,then

Accepted Answer

Trade deficit means that a country's imports exceed its exports. Therefore, option A is the only correct choice. Option B would indicate a trade surplus. Option C and D are irrelevant to the given information.

Question 20

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

Accepted Answer

The answer of Which of the following would be part...

Quiz 5: Saving and Investment in the Open Economy

If a French company exports $2 million of machinery to Italy and French tourists spend $2 million at Italian beaches,the French merchandise trade balance ,and the French capital and financial account balance .

If the Federal Reserve buys $3 billion worth of Japanese yen and sells $5 billion of euros,how does this affect the official settlements balance?

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

If a U.S.firm buys tulips from a Dutch firm and the Dutch firm uses the dollars it gets to buy U.S.stocks,the U.S.trade balance and the U.S.capital and financial account .