Question 1

Which of the following would result in a trade surplus for the United States?

Accepted Answer

The answer of Which of the following would result in...

Question 2

The balance of trade includes trade in

Accepted Answer

The answer of The balance of trade includes trade in
...

Question 3

An economy that does not have interactions in trade or finance with other economies is referred to as

Accepted Answer

A closed economy refers to an economy that does not engage in international trade or financial transactions with other economies. It is self-sufficient and all economic activities such as production, consumption, and investment are performed within the boundaries of the economy. In contrast, an open economy engages in international trade and financial transactions with other economies. A trade-balanced economy refers to an economy where the value of exports is equal to the value of imports. Net foreign investment economy refers to an economy that receives more investment from abroad than it invests in foreign countries.

Question 4

Which of the following would decrease net exports in the United States?

Accepted Answer

Purchasing goods from another country (imports) increases the import component of the net exports calculation, thereby decreasing net exports. Choices B, C, and D do not directly affect goods and services being exported or imported.

Question 5

China runs a current account surplus with the United States. Which of the following must be true about China's balance of payments with the United States?

Accepted Answer

A current account surplus means that China is earning more from exports to the United States than it is spending on imports. However, in order to maintain this surplus, it must finance the United States' imports by investing in the financial markets (e.g. buying U.S. Treasury bonds). This creates a financial account deficit for China. Therefore, A must be true. B and C are not necessarily true, as a current account surplus does not guarantee a surplus in the balance of trade or positive net exports. D is also not necessarily true, as a current account surplus can be offset by a financial account surplus.

Question 6

When net capital flows are positive,

Accepted Answer

The answer of When net capital flows are positive,
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Question 7

The United States usually exports ________ goods than it imports and exports ________ services than it imports.

Accepted Answer

The United States typically exports fewer goods than it imports, resulting in a goods trade deficit. However, it exports more services than it imports, leading to a services trade surplus.

Question 8

If the balance of the current account in the United States is -$900 billion, which of the following is most likely to be true?

Accepted Answer

The balance on the financial account is likely to be positive because a deficit in the current account (such as a -$900 billion balance) typically means that the country is importing more than it is exporting, which must be financed by inflows in the financial account, reflecting borrowing or selling domestic assets to foreigners.

Question 9

When a foreign investor buys a bond issued in the United States,

Accepted Answer

When a foreign investor buys a bond issued in the United States, it is a financial transaction and it increases the balance on the financial account. The capital account records transactions related to non-produced, non-financial assets, while the current account records transactions related to goods, services, and primary income. The balance of trade only considers the import and export of goods. Therefore, options A, B, and D are not correct.

Question 10

In 2013, global profits for McDonald's ________ when measured in local currencies than they did when measured in dollars. This occurred because the value of the U.S. dollar increased relative to most other currencies.

Accepted Answer

The answer of In 2013, global profits for McDonald's ________...

Question 11

Net foreign investment is equal to

Accepted Answer

Net foreign investment is the sum of a country's net foreign direct investment (FDI) and net foreign portfolio investment. It represents the total amount of investment capital that flows into a country from abroad minus the capital that flows out of the country.

Question 12

Which of the following is an example of foreign direct investment in China?

Accepted Answer

Foreign direct investment refers to a company investing in another country by establishing operations and controlling assets there. In this case, Wal-Mart has made a direct investment by purchasing a warehouse in China. The other options listed are not examples of foreign direct investment as they involve buying stocks, bonds, or currency, and do not involve establishing operations or controlling assets in another country.

Question 13

Since 1999, the capital account has recorded

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The answer of Since 1999, the capital account has recorded
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Question 14

If the balance on the current account is $346 billion and the balance on the financial account is -$204 billion, what is the balance on the capital account, assuming no statistical discrepancy?

Accepted Answer

The answer of If the balance on the current account...

Question 15

The current account includes records of a country's

Accepted Answer

The current account includes the balance of trade (net exports), net investment income, and net transfers. Therefore, all of the above are included in an economy's current account.

Question 16

If the current account is in deficit and the capital account is zero, then

Accepted Answer

This is due to the fundamental balance of payments identity, which states that the sum of the current account, capital account, and financial account must equal zero. Therefore, if the current account is in deficit and the capital account is zero, the financial account must be in surplus to balance out the equation.

Question 17

Which of the following transactions would be included in Germany's current account?

Accepted Answer

Transactions included in a country's current account typically involve the trade of goods and services. The purchase of a new Volkswagen made in Germany by an American citizen (D) is an export of goods, which is recorded in the current account. Choices A and B involve financial transactions not recorded in the current account, and choice C is a domestic transaction that does not affect international trade balances.

Question 18

An increase in United States net foreign direct investment would occur if

Accepted Answer

An increase in United States net foreign direct investment (FDI) would occur if United States citizens increase their building or purchasing of facilities in foreign countries, which would lead to a higher level of income earned by U.S. entities from their foreign investments. FDI refers specifically to investments in businesses or projects abroad that involve ownership stake and management control. Option A refers to portfolio investment, which is different from FDI. Option C simply restates the premise, and option D refers to a decrease in capital flows, which may or may not affect FDI specifically.

Question 19

If foreign holdings of U.S. dollars increase, holding all else constant,

Accepted Answer

When foreign holdings of U.S. dollars increase, it means that there is an increased demand for U.S. assets, such as stocks and bonds. This leads to an increase in the balance on the U.S. financial account, which measures the inflow and outflow of capital from the U.S. Note that this does not necessarily mean that the U.S. is exporting more goods and services, which is measured by the balance on the current account.

Question 20

Which of the following would increase the balance on the current account?

Accepted Answer

An increase in the balance of trade (the difference between a country's exports and imports) would increase the balance on the current account, as it indicates that the country is exporting more than it is importing, contributing positively to its current account balance.

Quiz 29: Macroeconomics in an Open Economy