Question 1

The US savings deficit can be attributed,in part,to

Accepted Answer

The growing US budget deficit means that the government is spending more money than it is receiving in revenue, which reduces the amount of savings available for private investment. This contributes to the savings deficit.

Question 2

balance of trade deficit results in a current account

Accepted Answer

A balance of trade deficit means that a country is importing more goods and services than it is exporting, which results in a current account deficit. This means the country is spending more money on imports than it is earning from exports, which can lead to a decrease in foreign currency reserves and potentially weaken the country's currency. In response, a country may need to take measures such as reducing imports or increasing exports to address the current account deficit. IMF intervention and World Bank loans may be options to address a current account deficit, but they are not directly caused by a balance of trade deficit.

Question 3

Recent US trade deficits can be attributed to

Accepted Answer

The US savings deficit, which means that the country is spending more than it is saving, is the primary cause of recent trade deficits. This has led to a dependence on foreign investment and borrowing to fund consumption, resulting in a negative balance of trade.

Question 4

In a freely floating exchange rate system,if the capital account is running a deficit

Accepted Answer

In a freely floating exchange rate system, if the capital account is running a deficit (meaning more capital is leaving the country than entering), the current account must run a surplus to balance it out. This is because the balance of payments is the sum of the current account and the capital account, and it must always balance to zero. A surplus in the current account indicates that a country is exporting more than it is importing, which can offset the capital leaving the country.

Question 5

The sale of American computers to the Spanish government shows up as

Accepted Answer

The sale of American computers to the Spanish government represents an export, which will increase the value of exports on the trade account. Therefore, it would be credited on the trade account.

Question 6

If a real value of a nation's freely floating currency increases,and the nation's current account is initially zero,its capital account will most likely be

Accepted Answer

When the real value of a nation's freely floating currency increases, it makes imports cheaper and exports more expensive. This results in an increase in the nation's trade surplus or a decrease in its trade deficit. As the current account is initially zero, the increase in the real value of the currency will lead to a current account surplus. This surplus will induce capital inflows, resulting in a capital account surplus. Therefore, the capital account will most likely be in surplus.

Question 7

change in private domestic borrowing or lending required to keep payments in balance without adjusting official reserves is called

Accepted Answer

The change in private domestic borrowing or lending required to keep payments in balance without adjusting official reserves is called the net liquidity balance. It is the excess or shortfall of private lending and borrowing that is needed to maintain the balance of payments without any change in official reserves.

Question 8

Which of the following accounts is the best measure of the change in private domestic borrowing or lending that is required to keep payments in balance without adjusting official reserves?

Accepted Answer

The answer of Which of the following accounts is the...

Question 9

In a freely floating exchange rate system,if the capital account surplus for the U.S.rises,what will most likely happen to the real value of the dollar?

Accepted Answer

A capital account surplus means there is an inflow of foreign investments into the U.S., leading to an increase in demand for the dollar. This, in turn, leads to a rise in the real value of the dollar in a freely floating exchange rate system.

Question 10

What is another name for gifts and grants overseas?

Accepted Answer

Unilateral transfers refer to one-way transfers of money or goods from one country to another, without any expectation of receiving something in return. Gifts and grants overseas fall under this category. Therefore, the correct choice is A) Unilateral transfers.

Question 11

accounting statement that summarizes all the economic transactions between residents of the home country and residents of all other countries is called the

Accepted Answer

The balance of payments is a comprehensive accounting statement that summarizes all the economic transactions between residents of the home country and residents of all other countries, including trade, services, income, and unilateral transfers. The balance of trade only covers the difference between exports and imports, and the current account balance includes trade and services but excludes income and unilateral transfers. The capital account balance only tracks transfers of financial assets between countries.

Question 12

account that records imports and exports of goods,services,income,and current unilateral transfers is known as the

Accepted Answer

The current account records imports and exports of goods, services, income, and current unilateral transfers, reflecting the net amount of a country's income if it is in surplus, or spending if it is in deficit.

Question 13

The Japanese current account surplus can best be attributed to

Accepted Answer

The high rate of Japanese savings has contributed to the country's current account surplus. This is because a high level of savings leads to increased investment by Japanese firms, which in turn increases exports and thus boosts the current account surplus. Additionally, a high level of savings means that Japan is able to invest in foreign assets, which also contributes to the current account surplus.

Question 14

To which balance of payment category would purchases of gold by the Bank of England belong?

Accepted Answer

Purchases of gold by the Bank of England would belong to the Official Reserve Account category as gold is a reserve asset held by central banks to support their currencies and to settle international debts.

Question 15

In a freely-floating exchange rate system,the sale of Japanese cars to the United States will be offset by which item on the US balance of payments?

Accepted Answer

The answer of In a freely-floating exchange rate system,the sale...

Question 16

The sale of US treasury bonds by a Frenchman shows up as

Accepted Answer

The sale of US treasury bonds by a Frenchman does not directly affect the capital account, trade account, or official reserves account in the ways described by options A, B, or C. These transactions are part of the financial account, which records investments and financial flows, rather than the capital account, trade account, or official reserves account.

Question 17

As the real value of the dollar rises,the balance on current account is likely to

Accepted Answer

As the real value of the dollar rises, it becomes relatively more expensive to purchase goods and services from other countries, which may lead to a decrease in imports and an increase in exports. This shift in trade patterns is likely to result in a decrease in the balance on current account.

Question 18

Which one of the following would NOT be considered as part of a nation's capital account?

Accepted Answer

License fees earned by Hewlett Packard would be considered part of a nation's current account, as it represents income earned from exporting services. The other choices involve either transactions in real assets (B) or financial assets (C and D), which would be considered part of a nation's capital account.

Question 19

Tourism shows up on the ____ account.

Accepted Answer

Tourism is considered a service, and services fall under the current account in the balance of payments (BOP) which records all economic transactions between a country and the rest of the world over a specific time period. The current account includes trade in goods and services, income receipts and payments, and unilateral transfers such as foreign aid. The merchandise account (A) records the trade in goods only, while the capital account (C) records capital transfers and the acquisition or disposal of non-produced, non-financial assets. The official reserves (D) account records changes in a country's holdings of foreign exchange reserves and gold.

Question 20

What theory holds that a country's trade deficit worsens just after its currency depreciates because price effects will dominate the effect on volume of imports in the short run?

Accepted Answer

The J-curve theory holds that a country's trade deficit will initially worsen (J-curve effect) just after its currency depreciates because price effects, such as increased cost of imports, will dominate the effect on volume of imports in the short run. Over time, as exports become more competitive and import demand decreases, the trade deficit may eventually improve.

Quiz 5: The Balance of Payments and International Economic Linkages