Question 1

balance of trade deficit results in a current account&#10;A) deficit&#10;B) surplus&#10;C) IMF intervention&#10;D) World Bank loan

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 2

Tourism shows up on the ____ account.&#10;A) merchandise&#10;B) current&#10;C) capital&#10;D) official reserves

Accepted Answer

Tourism is considered a service and falls under the current account, which includes transactions of goods and services.

Question 3

accounting statement that summarizes all the economic transactions between residents of the home country and residents of all other countries is called the&#10;A) balance of trade&#10;B) current account balance&#10;C) balance of payments&#10;D) capital account balance

Accepted Answer

The balance of payments is a complete accounting record of all transactions between a country and the rest of the world, including those related to international trade in goods and services, financial flows, and transfers. It is divided into three main components: the current account balance, the capital account balance, and the financial account balance. The current account balance focuses on trade in goods and services, while the capital account balance consists of capital transfers and acquisitions of fixed assets. The financial account balance records flows of financial assets and liabilities, including direct investment, portfolio investment, and other investment. Overall, the balance of payments provides a comprehensive view of a country's international economic relationships and can be used to analyze trends in trade, investment, and capital flows.

Question 4

order to reduce its current-account deficit, the United States would NOT do which of the following?&#10;A) reduce the federal budget deficit&#10;B) raise national product relative to national spending&#10;C) increase savings relative to domestic investment&#10;D) decrease savings relative to domestic investment

Accepted Answer

To reduce the current-account deficit, the United States would need to increase savings relative to domestic investment, not decrease it as option D suggests. Options A, B, and C are all measures that could potentially help reduce the current-account deficit.

Question 5

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?&#10;A) a credit on the net liquidity balance&#10;B) a debit on the capital account&#10;C) a debit on the trade account&#10;D) a credit on the current account

Accepted Answer

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

Question 6

the real value of the dollar rises, the balance on current account is likely to&#10;A) increase&#10;B) decrease&#10;C) stay the same&#10;D) move with the capital account adjustments factor

Accepted Answer

When the real value of the dollar rises, exports become more expensive and imports become cheaper. This leads to a decrease in the balance on current account, as the country is likely to import more and export less.

Question 7

US savings deficit can be attributed, in part, to&#10;A) the growing US budget deficit&#10;B) high real interest rates abroad&#10;C) low American investment in plant and equipment&#10;D) rising US taxes on capital accumulation

Accepted Answer

The growing US budget deficit contributes to the US savings deficit because the government is borrowing more money, which means there is less money available for private saving. This leads to a decrease in the overall level of saving in the US.

Question 8

Recent US trade deficits can be attributed to&#10;A) Japanese protectionism&#10;B) high US wages and benefits&#10;C) lack of American competitiveness abroad&#10;D) the US savings deficit

Accepted Answer

The US savings deficit means that the country is borrowing money to finance its consumption, which includes importing goods. This leads to a trade deficit, where the amount spent on imports exceeds the amount earned from exports. Therefore, the recent US trade deficits can be attributed to the US savings deficit.

Question 9

most likely way to reduce the Japanese trade surplus is to&#10;A) revalue the Japanese yen&#10;B) impose quotas on imports from Japan&#10;C) boost Japanese savings&#10;D) boost Japanese consumption

Accepted Answer

Boosting Japanese consumption would increase domestic demand for goods, which would increase imports from other countries and potentially reduce the trade surplus. Revaluing the yen would make Japanese exports more expensive and potentially reduce exports, but this strategy could also negatively affect Japanese businesses and the overall economy. Imposing quotas on imports from Japan would limit trade and potentially harm diplomatic relations. Boosting Japanese savings would not necessarily reduce the trade surplus as it does not directly address demand for imports.

Question 10

change in private domestic borrowing or lending required to keep payments in balance without adjusting official reserves is called&#10;A) the net liquidity balance&#10;B) the balance of payments&#10;C) the balance on current account&#10;D) the balance on capital account

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 difference between the balance of payments and the change in official reserves. The balance of payments refers to the overall flow of goods, services, and capital in and out of a country. The balance on current account and the balance on capital account are two components of the balance of payments.

Question 11

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?&#10;A) it will decline&#10;B) it will rise&#10;C) there is no impact on the dollar&#10;D) the IMF will step in to adjust rising exchange rates

Accepted Answer

The answer of a freely floating exchange rate system, if...

Question 12

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&#10;A) in deficit&#10;B) in surplus&#10;C) adjusted for the rate of inflation&#10;D) decreased by the amount of increase in the current account

Accepted Answer

The answer of a real value of a nation's freely...

Question 13

Suppose Lufthansa buys 10 Boeing 747s for $150 million in 1991, financed by a five?year loan from the US Export?Import Bank. There is a one year grace period on principal and interest payments. Which one of the following would NOT be one of the net impacts of this sale in 1991?

A) a $150 million reduction in the U.S. trade deficit
B) a $150 million reduction in the U.S. capital account surplus
C) a $150 million increase in the U.S. trade deficit
D) zero change in the U.S. balance of payments in 1991

Accepted Answer

The answer of Suppose Lufthansa buys 10 Boeing 747s for...

Question 14

nation that is running a savings deficit&#10;A) must spend less than it produces&#10;B) will invest domestically more than it saves&#10;C) will invest domestically less than it saves&#10;D) must have a net capital outflow

Accepted Answer

The answer of nation that is running a savings deficit&#10;A)...

Question 15

sale of US treasury bonds by a Frenchman shows up as&#10;A) a credit on the capital account&#10;B) a debit on the trade account&#10;C) a credit on the official reserves account&#10;D) none of the above

Accepted Answer

The answer of sale of US treasury bonds by a...

Question 16

Japanese current account surplus can best be attributed to&#10;A) the high rate of Japanese domestic investment&#10;B) Japanese protectionism&#10;C) the high rate of Japanese savings&#10;D) government budget deficits

Accepted Answer

The answer of Japanese current account surplus can best be...

Question 17

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?&#10;A) net liquidity balance&#10;B) direct investment&#10;C) basic balance&#10;D) official reserve transactions balance

Accepted Answer

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

Question 18

sale of American computers to the Spanish government shows up as&#10;A) a debit on the official reserves account&#10;B) a credit on the official reserves account&#10;C) a credit on the trade account&#10;D) a debit on the current account

Accepted Answer

The answer of sale of American computers to the Spanish...

Question 19

a freely floating exchange rate system, if the capital account is running a deficit&#10;A) the balance of payments must run a deficit&#10;B) the balance of payments must be a deficit&#10;C) the current account must run a deficit&#10;D) the current account must run a surplus

Accepted Answer

The answer of a freely floating exchange rate system, if...

Question 20

a nation's income exceeds its spending, then which of the following would NOT result?&#10;A) savings will exceed domestic investment&#10;B) the nation must run a current?account surplus&#10;C) the nation must run a capital?account deficit&#10;D) savings will equal domestic investment

Accepted Answer

The answer of a nation's income exceeds its spending, then...

Deck 5: The Balance of Payments and International Economic Linkages