Question 1

Suppose a wealthy Canadian donates $10 million to charities in Mexico.Mexican net exports ________ and the current account balance ________.
A)fall; rises
B)rise; rises
C)are unchanged; is unchanged
D)fall; is unchanged

Accepted Answer

D

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?
A)Falls by $2 billion
B)Rises by $2 billion
C)Rises by $3 billion
D)Falls by $5 billion

Accepted Answer

The official settlements balance falls by $2 billion because the Federal Reserve's purchase of yen increases foreign reserves by $3 billion, while the sale of euros decreases them by $5 billion, resulting in a net decrease of $2 billion.

Question 3

If a French company sells 1000 gallons of Perrier to a U.S.company at 5 euros per gallon,and uses the money to buy stock in a Spanish cork company,how does this affect the French balance of payments accounts?
A)Debit: capital and financial account; credit: merchandise trade
B)Debit: merchandise trade; credit: capital and financial account
C)Debit: net investment income from abroad; credit: capital and financial account
D)Debit: merchandise trade; credit: net investment income from abroad

Accepted Answer

The sale of Perrier is an export, which is a credit to the merchandise trade account, and the purchase of stock is an investment abroad, which is a debit to the capital and financial account.

Question 4

A country has a current account surplus if
A)the value of its exports exceeds the value of its imports,assuming net income from foreign assets and net unilateral transfers have a value of zero.
B)the value of its net exports of services exceeds the value of its net exports of goods.
C)it receives more income from foreign assets than it pays to foreigners for foreign-owned domestic assets.
D)its capital inflows exceed its capital outflows.

Accepted Answer

A country has a current account surplus when its exports exceed its imports, assuming net income from foreign assets and net unilateral transfers have a value of zero. This means that the country is exporting more than it is importing, which in turn means it is earning foreign currency and has a positive balance of trade.

Question 5

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 ________.
A)rises; rises
B)rises; falls
C)falls; falls
D)falls; rises

Accepted Answer

The U.S. trade balance falls because the purchase of tulips is an import, increasing the trade deficit. The U.S. capital and financial account rises because the Dutch firm uses the dollars to invest in U.S. stocks, which is an inflow of capital.

Question 6

Which of the following would be part of the nation's current account?
A)An old house purchased by an American in Italy
B)The purchase of a U.S.Treasury bond by a foreigner
C)The interest an American earns on a British bond
D)A factory built by the Japanese in the United States

Accepted Answer

The current account includes transactions in goods, services, primary income, and secondary income between residents and non-residents. The interest an American earns on a British bond falls under primary income, which is part of the current account. Choices A, B, and D involve capital transfers or investments, which are part of the financial account, not the current account.

Question 7

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?
A)Debit: merchandise trade; credit: capital and financial account
B)Debit: capital and financial account; credit: merchandise trade
C)Debit: merchandise trade; credit: services
D)Debit: services; credit: merchandise trade

Accepted Answer

The import of Toyotas from Japan would be recorded as a debit in the merchandise trade account, as it involves the transfer of goods across borders. The purchase of airline tickets by the Japanese company from a U.S. airline would be recorded as a credit in the services account, as it involves the transfer of intangible services across borders. Therefore, the correct option is Debit: merchandise trade; credit: services.

Question 8

The current account balance consists of
A)the trade balance plus the services balance.
B)net exports of goods and services,minus net unilateral transfers.
C)net exports of goods and services,plus investment income from abroad,plus net unilateral transfers.
D)net exports of goods and services,plus investment income from abroad,plus net unilateral transfers,minus the capital and financial account balance.

Accepted Answer

The current account balance measures a country's total exports and imports of goods and services, as well as other transfers such as investment income and unilateral transfers (gifts or aid received or given). Therefore, the correct option is C, which includes all three components mentioned. Option A includes only the trade and services balance, while option B omits the investment income and unilateral transfers. Option D subtracts the capital and financial account balance, which is not part of the current account balance.

Question 9

Net exports of goods are known as
A)the balance of payments.
B)the merchandise trade balance.
C)the current account.
D)the capital and financial account.

Accepted Answer

Net exports of goods refer specifically to the difference between the value of a country's exported goods and the value of its imported goods, which is the merchandise trade balance. The balance of payments, current account, and capital and financial account are broader measures that include multiple types of economic transactions beyond just goods trade.

Question 10

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 ________.
A)rises; rises
B)rises; is unchanged
C)is unchanged; is unchanged
D)is unchanged; rises

Accepted Answer

The answer of If a French company exports $2 million...

Question 11

A negative value for the U.S.official reserve assets line in the balance of payments accounts means that
A)U)S.residents have sold more gold to foreigners than they bought.
B)U)S.residents bought more gold from foreigners than they sold.
C)the U.S.central bank has increased its holdings of foreign reserve assets.
D)the U.S.central bank has decreased its holdings of foreign reserve assets.

Accepted Answer

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

Question 12

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 ________.
A)rises; rises
B)rises; falls
C)falls; falls
D)falls; rises

Accepted Answer

The answer of If a Japanese company sells 200 VCRs...

Question 13

If all international factor payment flows are investment income,then net investment income from abroad equals
A)net exports.
B)the current account balance.
C)the trade balance.
D)net factor payments from abroad.

Accepted Answer

Net investment income from abroad is synonymous with net factor payments from abroad, as both refer to the income residents receive from investments abroad minus the income paid to foreign investors.

Question 14

The official settlements balance equals
A)the sum of the current account and the capital and financial account.
B)the current account minus net unilateral transfers.
C)net investment income from abroad.
D)the net increase in a country's official reserve assets.

Accepted Answer

The official settlements balance is the net increase or decrease in a country's official reserve assets (such as gold or foreign currency holdings) due to international transactions. Therefore, the correct answer is D. A, B, and C are not correct as they do not represent the official settlements balance.

Question 15

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 ________.
A)rises; rises
B)rises; is unchanged
C)is unchanged; is unchanged
D)is unchanged; rises

Accepted Answer

The answer of If a French company exports $2 million...

Question 16

Which of the following would be part of the nation's capital and financial account?
A)A night club show seen by an American in Mexico City
B)A dividend from a British equity owned by an American
C)A payment to the Philippine government for the use of military bases in their country
D)One hundred shares of British Petroleum stock purchased by an American

Accepted Answer

The capital and financial account records transactions involving the purchase and sale of assets, such as stocks, bonds, and real estate. The purchase of shares in British Petroleum by an American is a financial transaction involving the acquisition of foreign assets.

Question 17

If a country's merchandise exports exceed its merchandise imports it has a
A)trade surplus.
B)trade deficit.
C)current account surplus.
D)current account deficit.

Accepted Answer

A country has a trade surplus when its merchandise exports exceed its merchandise imports, meaning it is selling more than it is buying from other countries. This can lead to a current account surplus, which is the overall balance of payments including not only merchandise trade but also services, income, and transfer payments.

Question 18

If the United States donates footballs to Japan,how is the transaction recorded on the U.S.balance of payments accounts?
A)Debit: merchandise trade; credit: capital and financial account
B)Debit: capital and financial account; credit: merchandise trade
C)Debit: net unilateral transfers; credit: merchandise trade
D)Debit: merchandise trade; credit: net unilateral transfers

Accepted Answer

The answer of If the United States donates footballs to...

Question 19

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 ________.
A)rises; rises
B)rises; falls
C)falls; falls
D)falls; rises

Accepted Answer

The answer of If the United States sells computers to...

Question 20

If France has a trade deficit,then
A)imports into France exceed exports from France.
B)exports from France exceed imports into France.
C)imports into the United States from France exceed exports from the United States into France.
D)imports into France from the United States exceed exports from France into the United States.

Accepted Answer

A trade deficit means that a country is importing more goods and services than it is exporting. Therefore, imports into France exceed exports from France.

Quiz 5: Saving and Investment in the Open Economy

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

If a French company sells 1000 gallons of Perrier to a U.S.company at 5 euros per gallon,and uses the money to buy stock in a Spanish cork company,how does this affect the French balance of payments accounts?

A country has a current account surplus if

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 .

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

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?

The current account balance consists of

Net exports of goods are known as

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 .

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

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 .

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

The official settlements balance equals

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 .

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

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

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

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 .

If France has a trade deficit,then