Deck 5: The Balance of Payments and International Economic Linkages

Question 1

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

A)the growing US budget deficit
B)high real interest rates abroad
C)low American investment in plant and equipment
D)rising US taxes on capital accumulation

Answer 1

A

Question 2

balance of trade deficit results in a current account

A)deficit
B)surplus
C)IMF intervention
D)World Bank loan

Answer 2

A

Question 3

Recent US trade deficits can be attributed to

A)Japanese protectionism
B)high US wages and benefits
C)lack of American competitiveness abroad
D)the US savings deficit

Answer 3

D

Question 4

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

A)the balance of payments must run a deficit
B)the balance of payments must be a deficit
C)the current account must run a deficit
D)the current account must run a surplus

Question 5

sale of American computers to the Spanish government shows up as

A)a debit on the official reserves account
B)a credit on the official reserves account
C)a credit on the trade account
D)a debit on the current 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

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

Question 7

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

A)the net liquidity balance
B)the balance of payments
C)the balance on current account
D)the balance on capital account

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?

A)net liquidity balance
B)direct investment
C)basic balance
D)official reserve transactions balance

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?

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

Question 10

is another name for gifts and grants overseas?

A)Unilateral transfers
B)Basic balance
C)Reserve assets
D)Direct investment

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

A)balance of trade
B)current account balance
C)balance of payments
D)capital account balance

Question 12

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

A)current account
B)capital account
C)financial account
D)balance-of-payment account

Question 13

The Japanese current account surplus can best be attributed to

A)the high rate of Japanese domestic investment
B)Japanese protectionism
C)the high rate of Japanese savings
D)government budget deficits

Question 14

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

A)Official Reserve Account
B)Current Account
C)Capital Account
D)Unilateral transfers

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?

A)a credit on the net liquidity balance
B)a debit on the capital account
C)a debit on the trade account
D)a credit on the current account

Question 16

sale of US treasury bonds by a Frenchman shows up as

A)a credit on the capital account
B)a debit on the trade account
C)a credit on the official reserves account
D)none of the above

Question 17

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

A)increase
B)decrease
C)stay the same
D)move with the capital account adjustments factor

Question 18

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

A)license fees earned by Hewlett Packard
B)purchases by the Chinese of U.S.real estate
C)increases in Brazilian bank deposits in San Francisco banks
D)purchases of U.S.Treasury bonds by the Bank of England

Question 19

Tourism shows up on the ____ account.

A)merchandise
B)current
C)capital
D)official reserves

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?

A)J-curve theory
B)Protectionism theory
C)Official reserve transactions theory
D)Net liquidity balance theory

Question 21

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

Question 22

The most likely way to reduce the Japanese trade surplus is to

A)revalue the Japanese yen
B)impose quotas on imports from Japan
C)boost Japanese savings
D)boost Japanese consumption

Question 23

In order to reduce its current?account deficit,the United States would NOT do which of the following?

A)reduce the federal budget deficit
B)raise national product relative to national spending
C)increase savings relative to domestic investment
D)decrease savings relative to domestic investment

Question 24

A nation that is running a savings deficit

A)must spend less than it produces
B)will invest domestically more than it saves
C)will invest domestically less than it saves
D)must have a net capital outflow

Question 25

If a nation's income exceeds its spending,then which of the following would NOT result?

A)savings will exceed domestic investment
B)the nation must run a current?account surplus
C)the nation must run a capital?account deficit
D)savings will equal domestic investment