Deck 13: National Income Accounting and the Balance of Payments

Question 1

The "conventional wisdom" is that:

A) trade deficits are good.
B) imports equaling exports is perfect.
C) trade surpluses are good.
D) imports are more desirable than exports.
E) exports are not good.

Answer 1

trade surpluses are good.

Question 2

Which of the following is excluded from the calculation of GDP?

A) imports
B) exports
C) investment
D) volunteer activities
E) housing

Answer 2

volunteer activities

Question 3

_____ GDP accounts for changes in prices and _____ GDP does not.

A) nominal, real
B) new, old
C) old, new
D) real, nominal
E) real, outdated

Answer 3

real, nominal

Question 4

Which of the following statements is correct?

A) Y = C - I - G + (X - M)
B) Y + C + I - G = (X - M)
C) Y - C - I + (X - G) = M
D) Y - C - I - G = (X - M)
E) Y = (X-M)

Question 5

Which of the following relationships is incorrect?

A) Y = C + I + G + (X - M)
B) Y - C - I - G = (X - M)
C) S ++ M = G + I + X
D) Y += G - X
E) M = Y - X

Question 6

Which of the following would not be considered when calculating GDP?

A) a stay-at-home individual that gardens
B) the barbeque sauce on chicken wings sold at a restaurant
C) the buns for the hamburgers sold at a baseball game concession stand
D) the purchase of a car
E) the building of a plant

Question 7

The value of final output measured in current prices is:

A) nominal GDP.
B) market value GDP.
C) real GDP.
D) real nominal GDP.
E) structural GDP

Question 8

Real GDP is the value of final output measured in:

A) constant prices.
B) current prices.
C) non-inflation adjusted prices.
D) market value prices.
E) purchasing prices.

Question 9

Which of the following is not one of the components of GDP?

A) Gross private domestic investment
B) Consumption by the public
C) Government spending on goods and services
D) exports
E) Foreign direct investment by U.S. corporations

Question 10

The GDP of a closed economy is composed of:

A) consumption, investment, and government spending.
B) consumption, investment, government spending, and the trade balance.
C) consumption and investment.
D) consumption and government spending.
E) consumption and exports

Question 11

The GDP of an open economy is composed of:

A) consumption, investment, and government spending.
B) consumption, investment, government spending, and the trade balance.
C) consumption and investment.
D) consumption and government spending.
E) only consumption.

Question 12

When imports of a country increase, the GDP of that country will:

A) increase.
B) decrease.
C) remain the same.
D) increase at an increasing rate.
E) not change.

Question 13

When GDP is smaller than the sum of C, I, and G, then:

A) a country is consuming more goods and services than it is producing.
B) a country is consuming less goods and services than it is producing.
C) the country is reducing its total debt to foreigners.
D) the country will have a trade surplus.
E) exports are small.

Question 14

When GDP is larger than the sum of C, I, and G, then:

A) a country prefers current consumption to future consumption.
B) a country prefers future consumption to current consumption.
C) a country will have a trade deficit.
D) a country will borrow to increase spending.
E) exports are large.

Question 15

When a country has a trade deficit:

A) the country has chosen present consumption over future consumption.
B) the country has chosen future consumption over present consumption.
C) the country's exporters must be facing restrictive trade barriers abroad.
D) the country has chosen saving over consumption in order to grow faster in the future.
E) the country is not consuming enough.

Question 16

Which of the following is an injection of income?

A) Savings
B) Taxes
C) Imports
D) Investment
E) All of the above

Question 17

Leakages from the income flow do not include which of the following?

A) Savings
B) Taxes
C) Investment
D) Imports
E) All of the above

Question 18

When a country has a trade surplus, then:

A) the sum of savings and taxes must be greater than the sum of government spending and investment.
B) the sum of savings and taxes must be less than the sum of government spending and investment.
C) the sum of savings, taxes, and imports must be greater than the sum of government spending, investment, and exports.
D) the sum of savings, taxes, and imports must be less than the sum of government spending, investment, and exports.
E) it does not import.

Question 19

If S +> G + I then which of the following statements is true?

A) X - M will be negative.
B) X - M will be positive.
C) The country will have a current account deficit.
D) The country will have a capital account surplus.
E) Trade will be balanced.

Question 20

To reduce a trade deficit, a country could:

A) increase investment.
B) increase taxes.
C) trade with more accommodating countries.
D) increase government spending.
E) decrease saving.

Question 21

To reduce a trade surplus, a country could:

A) increase savings.
B) increase investment.
C) increase taxes.
D) decrease government spending.
E) not change government spending.

Question 22

Reducing a current account deficit requires:

A) increasing domestic saving relative to investment.
B) decreasing domestic tax revenues relative to government spending.
C) increasing the capital account surplus.
D) reducing national output relative to national spending.
E) not changing investment.

Question 23

A trade deficit _____ the indebtedness of a country to foreigners.

A) increases
B) decreases
C) has no effect on
D) reduces
E) completes

Question 24

A record of all economic transactions between residents of one country with the rest of the world is called:

A) the trade balance.
B) the balance of payments.
C) the current account balance.
D) the foreign exchange market.
E) payments accounting.

Question 25

In 2013, the U.S. had a:

A) current account deficit and a capital and financial account surplus.
B) current account surplus and a capital and financial account deficit.
C) current account deficit and a capital and financial account deficit.
D) current account surplus and a capital and financial account surplus.
E) zero current account balance.

Question 26

The balance of payments is:

A) positive when a country runs a trade surplus.
B) negative when a country runs and trade surplus.
C) always zero.
D) All of the above
E) none of the above

Question 27

The U.S.:

A) usually has a trade deficit in goods and services.
B) usually has a trade surplus in goods and services.
C) usually has a surplus in trade in goods.
D) usually has a deficit in trade in services.
E) usually has zero remittances.

Question 28

In recent years, the U.S. has run a _____ in goods trade and a _____ in services trade.

A) balance, balance
B) deficit, deficit
C) surplus, surplus
D) deficit, surplus
E) balance, deficit

Question 29

Suppose a German resident buys a U.S. treasury bond. This transaction would be recorded in the:

A) merchandise trade balance.
B) current account.
C) capital account.
D) financial account.
E) FDI account.

Question 30

An example of a unilateral transfer would be:

A) migration into or out of the country.
B) the export of a car.
C) birthday money from your aunt who lives in Thailand.
D) a German investor buying a Japanese bond.
E) a U.S. citizen giving money to a foreign charity.

Question 31

A deficit in a country's current account balance means that __________.

A) out-payments are less than in-payments
B) in-payments are not related to out-payments
C) out-payments are greater than in-payments
D) out-payments are the same as in-payments
E) out-payments are zero.

Question 32

A current account deficit:

A) implies the country is a net borrower from the rest of the world.
B) is always bad.
C) implies a matching capital account deficit.
D) is very rare for most countries.
E) never happens in the U.S.

Question 33

Which of the following transactions would not be a component of the current account balance?

A) An American multinational firm receives a shipment of goods from its foreign subsidiary.
B) An American investor receives an interest payment on a German bond.
C) A British tourist takes a vacation in the U.S.
D) An American multinational establishes a subsidiary in Bolivia.
E) An American sends money to a relative in Mexico.

Question 34

Which of the following would not be included in the U.S. current account?

A) The interest received on British bonds
B) The purchase of a 90-day U.S./ Treasury Bill by a German
C) The purchase of U.S. industrial chemicals by a Brazilian
D) Money spent by an Austrian tourist in the U.S.
E) A foreign parent pays for a U.S. college education.

Question 35

Which of the following statements is false?

A) High levels of consumption tend to be associated with current account deficits.
B) High levels of savings tend to be associated with current account surpluses.
C) Low levels of savings tend to be associated with current account deficits.
D) Low levels of savings tend to be associated with capital account deficits.
E) Savings and consumption affect the current account.

Question 36

FDI by U.S. firms enters the U.S. balance of payments:

A) as a part of the current account.
B) as a part of the financial account.
C) as an inflow of money into the U.S. economy.
D) as part of unilateral transfers.
E) as part of the balance on services.

Question 37

Deposits in foreign banks by Americans enter the U.S. balance of payments:

A) as part of the current account.
B) as part of the financial account.
C) as an export.
D) as a unilateral transfer.
E) remittances.

Question 38

A current account deficit is offset by:

A) a capital account deficit.
B) positive unilateral transfers.
C) earnings from foreign investments.
D) a capital and financial account surplus.
E) a positive balance on savings.

Question 39

A current account deficit is associated with, a capital and financial account _____ of _____ value.

A) surplus, greater
B) surplus, lesser
C) surplus, equal
D) deficit, equal
E) None of the above

Question 40

The entry used to balance the balance of payments accounts is:

A) accommodating transactions.
B) autonomous transactions.
C) statistical discrepancy.
D) portfolio transactions.
E) FDI.

Question 41

The term balance of trade refers to:

A) merchandise exports minus imports.
B) the balance on goods and services.
C) the current account balance.
D) the capital account balance.
E) exports and imports of services.

Question 42

The difference between merchandise exports and imports yields:

A) the balance on goods and services.
B) the current account balance.
C) the merchandise trade balance.
D) the balance on goods, services, and income.
E) perfect equality.

Question 43

A retired U.S. citizen now lives in a foreign country and is paid a monthly pension check. This payment is considered:

A) a unilateral transfer.
B) a financial account transfer
C) services rendered.
D) a current account transfer.
E) a capital account transfer.

Question 44

If a U.S. individual bought a condominium in Mexico, this would be recorded as:

A) a current account transaction.
B) a financial account transaction.
C) part of consumption in calculating U.S. GDP.
D) part of imports in calculating U.S. GDP.
E) an import of capital.

Question 45

Which of the following is not included in the current account?

A) exports of merchandise.
B) imports of services.
C) income earned on foreign held assets.
D) exports of financial assets.
E) FDI.

Question 46

Expenditures by foreign tourists in the U.S. are included in:

A) merchandise exports.
B) service exports.
C) the capital account.
D) unilateral transfers.
E) the financial account.

Question 47

The purchase of foreign assets by domestic residents is recorded as a:

A) unilateral transfer.
B) current account transaction.
C) capital inflow.
D) capital outflow.
E) capital expenditure.

Question 48

Since total inflows and outflows must be equal on a balance of payments statement, if the capital and financial account balance is positive, then the current account balance is:

A) positive.
B) negative.
C) equal.
D) increasing.
E) undefined.

Question 49

Consider the following information (in Euros) for a hypothetical country
$$\begin{array} { l l } \text { Exports of Merchandise } & 600 \\\text { Imports of Merchandise } & 400 \\\text { Exports of Services } & 1\colorbox{yellow} {50} \\\text { Imports of Services } & 100 \\\text { Income Receipts on Assets Abroad } & 100 \\\text { Income Payments on Foreign Assets } & 1\colorbox{yellow} {50} \\\text { Unilateral Transfers, Net } & - 10 \\\text { Change in Assets Abroad } & 300 \\\text { Change in Foreign Assets } & 100\end{array}$$

-The merchandise trade balance is:

A) -200.
B) -50.
C) 50.
D) 200.
E) 300.

Question 50

Consider the following information (in Euros) for a hypothetical country
$$\begin{array} { l l } \text { Exports of Merchandise } & 600 \\\text { Imports of Merchandise } & 400 \\\text { Exports of Services } & 1\colorbox{yellow} {50} \\\text { Imports of Services } & 100 \\\text { Income Receipts on Assets Abroad } & 100 \\\text { Income Payments on Foreign Assets } & 1\colorbox{yellow} {50} \\\text { Unilateral Transfers, Net } & - 10 \\\text { Change in Assets Abroad } & 300 \\\text { Change in Foreign Assets } & 100\end{array}$$

-The balance on services is:

A) -50.
B) 50.
C) 150.
D) 250.
E) 325.

Question 51

Consider the following information (in Euros) for a hypothetical country
$$\begin{array} { l l } \text { Exports of Merchandise } & 600 \\\text { Imports of Merchandise } & 400 \\\text { Exports of Services } & 1\colorbox{yellow} {50} \\\text { Imports of Services } & 100 \\\text { Income Receipts on Assets Abroad } & 100 \\\text { Income Payments on Foreign Assets } & 1\colorbox{yellow} {50} \\\text { Unilateral Transfers, Net } & - 10 \\\text { Change in Assets Abroad } & 300 \\\text { Change in Foreign Assets } & 100\end{array}$$

-The balance on goods and services is:

A) -150.
B) -100.
C) 150.
D) 175.
E) 250.

Question 52

Consider the following information (in Euros) for a hypothetical country
$$\begin{array} { l l } \text { Exports of Merchandise } & 600 \\\text { Imports of Merchandise } & 400 \\\text { Exports of Services } & 1\colorbox{yellow} {50} \\\text { Imports of Services } & 100 \\\text { Income Receipts on Assets Abroad } & 100 \\\text { Income Payments on Foreign Assets } & 1\colorbox{yellow} {50} \\\text { Unilateral Transfers, Net } & - 10 \\\text { Change in Assets Abroad } & 300 \\\text { Change in Foreign Assets } & 100\end{array}$$

-The balance on investment income is:

A) -50.
B) 50.
C) 150.
D) 200.
E) 220.

Question 53

Consider the following information (in Euros) for a hypothetical country
$$\begin{array} { l l } \text { Exports of Merchandise } & 600 \\\text { Imports of Merchandise } & 400 \\\text { Exports of Services } & 1\colorbox{yellow} {50} \\\text { Imports of Services } & 100 \\\text { Income Receipts on Assets Abroad } & 100 \\\text { Income Payments on Foreign Assets } & 1\colorbox{yellow} {50} \\\text { Unilateral Transfers, Net } & - 10 \\\text { Change in Assets Abroad } & 300 \\\text { Change in Foreign Assets } & 100\end{array}$$

-The current account balance is:

A) -190.
B) -90.
C) 90.
D) 120
E) 190.

Question 54

Consider the following information (in Euros) for a hypothetical country
$$\begin{array} { l l } \text { Exports of Merchandise } & 600 \\\text { Imports of Merchandise } & 400 \\\text { Exports of Services } & 1\colorbox{yellow} {50} \\\text { Imports of Services } & 100 \\\text { Income Receipts on Assets Abroad } & 100 \\\text { Income Payments on Foreign Assets } & 1\colorbox{yellow} {50} \\\text { Unilateral Transfers, Net } & - 10 \\\text { Change in Assets Abroad } & 300 \\\text { Change in Foreign Assets } & 100\end{array}$$

-The balance on goods, services, and income is:

A) -200.
B) -150.
C) 150.
D) 180.
E) e. 200.

Question 55

Consider the following information (in Euros) for a hypothetical country
$$\begin{array} { l l } \text { Exports of Merchandise } & 600 \\\text { Imports of Merchandise } & 400 \\\text { Exports of Services } & 1\colorbox{yellow} {50} \\\text { Imports of Services } & 100 \\\text { Income Receipts on Assets Abroad } & 100 \\\text { Income Payments on Foreign Assets } & 1\colorbox{yellow} {50} \\\text { Unilateral Transfers, Net } & - 10 \\\text { Change in Assets Abroad } & 300 \\\text { Change in Foreign Assets } & 100\end{array}$$

-The capital and financial account balance is

A) -200.
B) -190.
C) 190.
D) 200.
E) 220.

Question 56

Consider the following information (in Euros) for a hypothetical country
$$\begin{array} { l l } \text { Exports of Merchandise } & 600 \\\text { Imports of Merchandise } & 400 \\\text { Exports of Services } & 1\colorbox{yellow} {50} \\\text { Imports of Services } & 100 \\\text { Income Receipts on Assets Abroad } & 100 \\\text { Income Payments on Foreign Assets } & 1\colorbox{yellow} {50} \\\text { Unilateral Transfers, Net } & - 10 \\\text { Change in Assets Abroad } & 300 \\\text { Change in Foreign Assets } & 100\end{array}$$

-The statistical discrepancy is:

A) -10.
B) 0.
C) 10.
D) 20.
E) 35.

Question 57

The current account includes:

A) FDI
B) movements of portfolio capital
C) unilateral transfers
D) all of the above
E) none of the above

Question 58

Tuition paid by a foreign student at a university is counted as:

A) an import of a service.
B) a unilateral transfer.
C) an export of a service.
D) a receipt of foreign income.
E) none of the above.

Question 59

National income accounting refers to the calculation of the trade balance.

Question 60

An activity that is not counted in the marketplace is not included in GDP.

Question 61

GDP counts only final goods and services because this avoids double counting of goods going through several stages of the production process.

Question 62

Consumption in the U.S. is approximately 70 percent of GDP.

Question 63

By 2013 in the U.S. exports and imports accounted for 5 and 10 percent of GDP, respectively.

Question 64

In a closed economy GDP is equal to the sum of C, I, G, and M.

Question 65

GDP is a stock variable.

Question 66

GDP counts the final value of all goods and services produced n a country during a given period of time.

Question 67

Currently, U.S. government spending accounts for 50% of GDP.

Question 68

GDP records all economic transactions of a country during a given period of time.

Question 69

In calculating a country's GDP, we need to subtract the trade balance.

Question 70

If imports rise and everything else remains constant, then the GDP of a country will rise.

Question 71

Real GDP is equal to the difference between nominal GDP and the price level.

Question 72

When a country has a trade surplus it is consuming more than it is producing.

Question 73

A country with a trade surplus currently produces more than it consumes.

Question 74

A country's trade balance indicates a mismatch between a country's current production and its current consumption.

Question 75

The sum of leakages from the income flow must equal the sum of injections into the income flow.

Question 76

When the level of saving and taxes is larger than the sum of government spending and investment, then the country's trade balance will be negative.

Question 77

Taxes and savings are leakages of income.

Question 78

Outflows of income include imports and taxes.

Question 79

If national saving falls relative to national investment, the current account deficit will increase.

Question 80

To reduce a trade deficit, a country could increase its national savings.