Question 1

When a nation is said to be running a balance of payments surplus,this means its

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The answer of When a nation is said to be...

Question 2

Make use of a graph of the foreign exchange market to show how the Central Bank of Mexico can use an unsterilized intervention to increase the value of its currency,the peso,in terms of the dollar.

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The answer of Make use of a graph of the...

Question 3

Which of the following is NOT considered a receipt in the balance of payments?

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In the balance of payments, receipts are considered to be transactions that bring money into a country. Exports of goods (A), capital inflows (B), and unilateral transfers to U.S. citizens (D) all represent inflows of funds. In contrast, the import of services (C) involves paying money to foreign entities, thus it is considered an outflow, not a receipt.

Question 4

Which of the following was NOT considered to have been a drawback of the pre-1914 gold standard?

Accepted Answer

The pre-1914 gold standard was criticized for limiting countries' control over their domestic monetary policies (B) and causing deflation in countries with trade deficits (C). Changes in the world money supply due to gold discoveries (D) were indeed a feature of the gold standard, but not considered a drawback in the context of this question. Inflation leading to recessions, as mentioned in option A, was not typically associated as a drawback of the gold standard; rather, the system was more often criticized for its deflationary pressures.

Question 5

In 2009,the net financial account balance was approximately

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Question 6

Historically,the leading official reserve asset was

Accepted Answer

Gold was the leading official reserve asset for many years before the widespread use of fiat currencies. Central banks and governments held large amounts of gold as a means of backing the value of their currencies and providing a stable store of value. While the use of gold as a reserve asset has declined in recent years, it still plays an important role in international finance.

Question 7

The gold standard probably made the Great Depression more severe in the United States because

Accepted Answer

The gold standard limited the amount of money that could be created, tying it to the amount of gold a country possessed. During the Great Depression, to protect their gold reserves and discourage gold from leaving the country, the Federal Reserve raised interest rates. This action made borrowing more expensive, which in turn reduced spending and investment, exacerbating the economic downturn.

Question 8

What accounted for much of policymakers' concern over U.S.current account deficits in the 1980s,1990s,and 2000s?

Accepted Answer

Policymakers were concerned about U.S. current account deficits in the 1980s, 1990s, and 2000s because these deficits required the United States to borrow funds from foreign savers. This meant that the United States was becoming increasingly dependent on foreign countries to finance its consumption and investment, which could lead to potential vulnerabilities in the economy.

Question 9

Under the gold standard,if the demand for U.S.goods increased,which of the following would happen?

Accepted Answer

Under the gold standard, an increase in demand for U.S. goods would lead to an inflow of gold into the United States to finance the increased demand. This would allow for an expansion of the money supply, preventing prices from falling.

Question 10

If the U.S.current account balance is positive,

Accepted Answer

A positive current account balance means that the U.S. is exporting more than it is importing, which results in a net inflow of funds from foreign countries. These funds can be used by U.S. citizens to lend to foreigners, thus increasing the capital account surplus.

Question 11

Which of the following is true of the U.S.balance of payments?

Accepted Answer

The U.S. balance of payments includes all inflows of funds from foreigners to the United States, encompassing transactions for goods and services, financial assets, and unilateral transfers.

Question 12

How did the global savings glut in the 2000s affect the U.S.current account balance?

Accepted Answer

The global savings glut led to increased capital inflows into the U.S., which increased the demand for the dollar, thereby appreciating its value. This made U.S. exports more expensive and imports cheaper, contributing to a decline in the U.S. current account balance.

Question 13

Why do some economists think a global savings glut contributed to the U.S.running a current account deficit in the 2000s?

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The answer of Why do some economists think a global...

Question 14

The trade balance is

Accepted Answer

The trade balance represents the difference between a country's exports and imports of goods, while the current account balance includes both goods and services trade balances, as well as net primary income (such as wages and profits) and net secondary income (such as aid and gifts) between a country and the rest of the world. Therefore, while the trade balance is a significant component of the current account balance, it is not the only one.

Question 15

When someone in a country buys an asset abroad,the transaction is recorded

Accepted Answer

When someone buys an asset abroad, it represents a capital outflow from the country's financial account. The financial account records all transactions related to assets and liabilities between a country and the rest of the world, including foreign direct investment, portfolio investment, and other capital flows. Therefore, option D is the correct choice.

Question 16

What was the approximate value of the U.S.current account balance in 2009?

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Question 17

The current account balance plus the financial account balance

Accepted Answer

By definition, the current account balance plus the financial account balance should be equal to zero according to the balance of payments framework. This means that every transaction that results in a surplus or deficit in the current account should be offset by an opposite transaction in the financial account. Therefore, the sum of these two accounts should always add up to zero.

Question 18

In the balance-of-payments accounts,the statistical discrepancy

Accepted Answer

The statistical discrepancy in the balance-of-payments accounts likely reflects hidden capital flows, errors in data collection, or unreported transactions, rather than a precise mathematical relationship between the current and capital accounts.

Question 19

The official settlement balance

Accepted Answer

The official settlement balance is the net increase or decrease in a country's official reserve assets, including any changes in international reserves, Special Drawing Rights holdings, and reserve tranche positions in the IMF. Therefore, the correct answer is D.

Question 20

Which of the following is NOT considered a payment in the balance of payments?

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The answer of Which of the following is NOT considered...

Quiz 16: The International Financial System and Monetary Policy