Deck 13: National Income Accounting and the Balance of Payments

Question 1

For most macroeconomists

A) national income accounts is much more important than national output accounts.
B) it is impossible to tell whether national income accounts equal to national output accounts.
C) national output accounts exceed national income accounts.
D) national income accounts exceed national output accounts.
E) national income accounts and national output accounts are equal to each other.

Answer 1

national income accounts and national output accounts are equal to each other.

Question 2

Net unilateral transfers

A) are part of a national income.
B) are part of a country's product.
C) must be added to NNP in calculations of national income.
D) are part of a country's GNP.
E) Only A and C.

Answer 2

Only A and C.

Question 3

GDP is supposed to measure

A) the volume of production within a country's borders.
B) the volume of services generated within a country's borders.
C) the volume of production of a country's output.
D) GNP plus depreciation.
E) net unilateral transfers from foreigners.

Answer 3

the volume of production within a country's borders.

Question 4

National income equals GNP

A) less depreciation, less net unilateral transfers.
B) less depreciation or net unilateral transfers.
C) plus depreciation, less net unilateral transfers.
D) plus depreciation, plus net unilateral transfers.
E) less depreciation, plus net unilateral transfers.

Question 5

An example of how GNP accounts for services provided by foreign-owned capital (and GDP does not) is

A) earnings of a Spanish factory with British owners counts only in Spain's GDP.
B) earnings of a Spanish factory with British owners counts only in Britain's GNP.
C) earnings of a Spanish factory counts in Spain's GNP but are part of Britain's GDP.
D) earnings of a Spanish factory counts in Spain's GDP but are part of Britain's GNP.
E) earnings of a Spanish factory counts in Spain's GNP but not in Britain's GDP or GNP.

Question 6

Which one of the following statements is the MOST accurate?

A) The sale of a used textbook does generate income for factors of production.
B) The sale of a used textbook does not generate income for any factor of production.
C) The sale of a used textbook sometimes does and sometimes does not generate income for factors of production.
D) It is hard to tell whether a sale of a used textbook does or does not generate income for factors of production.
E) The sale of a used textbook is a part of the GNP.

Question 7

The sale of

A) a used textbook does enter GNP.
B) a used textbook does not enter GNP, but the sale of a used house does.
C) both a used textbook and a used house do not enter GNP.
D) a used house does not enter GNP, but the sale of a used book does.
E) the GNP does not include sale of used items priced below $1000.

Question 8

Which one of the following statements is the MOST accurate?

A) GNP plus depreciation is called net national product (NNP).
B) GNP less depreciation is called net national product (NNP).
C) GNP less depreciation is called net factor product (NFP).
D) GDP plus depreciation is called net national product (NNP).
E) GDP less depreciation is called net national product (NNP).

Question 9

The largest component of GNP is

A) the current account.
B) investment.
C) government purchases.
D) consumption.
E) trade.

Question 10

What are the main aspects of economic life that macroeconomics analysis is most concerned with?

Question 11

In 2015, the United States had

A) a surplus in the current account.
B) a balance in the current account.
C) a deficit in the current account.
D) a positive balance of net financial flows.
E) From 2015 data, it is too difficult to determine whether a surplus or a deficit existed in the current account.

Question 12

Movements in GDP

A) differ greatly from movements in GNP.
B) do not differ greatly from movements in GNP.
C) are not allowed to differ at all from movements in GNP by definition.
D) need to be inflation adjusted in order to match movements in GNP.
E) are not relevant to an examination of national income.

Question 13

GNP equals GDP

A) minus net receipts of factor income from the rest of the world.
B) plus receipts of factor income from the rest of the world.
C) minus receipts of factor income from the rest of the world.
D) plus net receipts of factor income from the rest of the world.
E) minus depreciation.

Question 14

GDP is different than GNP in that

A) it accounts for net unilateral transfers.
B) it does not account for indirect business taxes.
C) it does not account for a country's production using services with foreign-owned capital.
D) it accounts for depreciation.
E) it is unhelpful when tracking national income.

Question 15

What can you learn from the figure below (Figure 13-1 from the text) which depicts the U.S. GNP and its components for the 1st quarter of 2016?

Question 16

The United States began to report its gross domestic product (GDP) only since

A) 1900.
B) 1921.
C) 1931.
D) 1941.
E) 1991.

Question 17

In open economies

A) saving and investment are necessarily equal.
B) as in a closed economy, saving and investment are not necessarily equal.
C) saving and investment are not necessarily equal as they are in a closed economy.
D) saving and investment are necessarily equal contrary to the case of a closed economy.
E) investment always refers to the domestic stock market.

Question 18

Purchases of inventories by

A) firms are not counted in investment spending.
B) firms are also counted in investment spending.
C) households are also counted in investment spending.
D) households and Firms are also counted in investment spending.
E) foreign consumers are counter in investment spending.

Question 19

For most macroeconomists

A) gross national income exceeds gross national product.
B) it is hard to tell whether gross national income equals gross national product.
C) gross national product exceeds gross national income.
D) gross national product is much more important than gross national income.
E) gross national income and gross national product are the same.

Question 20

A country's gross national product (GNP) is

A) the value of all final goods and services produced by its factors of production and sold on the market in a given time period.
B) the value of all intermediate goods and services produced by its factors of production and sold on the market in a given time period.
C) the value of all final goods produced by its factors of production and sold on the market in a given time period.
D) the value of all final goods and services produced by its factors of production and sold on the market.
E) the value of all final goods and services produced by its factors of production, excluding land, and sold on the market in a given time period.

Question 21

For open economies,

A) S = I.
B) S = I + CA.
C) S = I - CA.
D) S > I + CA.
E) S < I + CA.

Question 22

Government transfer payments like social security and unemployment benefits are

A) included in government purchases.
B) not included in government purchases.
C) not included in government purchases, but they are included in the consumption component of GNP.
D) not included in government purchases, but they are part of the investment component of GNP.
E) included in government purchases but not in the GNP.

Question 23

In a closed economy, national saving

A) sometimes equals investment.
B) always equals investment.
C) is always less than investment.
D) is always more than investment.
E) is never equal to investment.

Question 24

Government savings, , is equal to

A) T - G.
B) T + G.
C) T = G.
D) T + G - I.
E) T - G = I.

Question 25

A closed economy

A) can save either by building up its capital stock or by acquiring foreign wealth.
B) can save only by building up its capital stock.
C) can save only by acquiring foreign wealth.
D) cannot save either by building up its capital stock or by acquiring foreign wealth.
E) can save by avoiding excessive imports.

Question 26

Disposable income is national income

A) less taxes collected from households and firms by the government.
B) plus net taxes collected from households and firms by the government.
C) less net taxes collected from firms by the government.
D) less net taxes collected from households by the government.
E) less net taxes collected from households and firms by the government.

Question 27

Which of the following is TRUE?

A) A country with a current account surplus is earning more from its exports than it spends on imports.
B) A country could finance a current account deficit by using previously accumulated foreign wealth to pay for its imports.
C) A country with a current account deficit must be increasing its net foreign debts by the amount of the deficit.
D) We can describe the current account surplus as the difference between income and absorption.
E) All of the above are true of current account balances.

Question 28

Over the 1980s

A) there is no question that a large increase in U.S. foreign assets did occur.
B) there is a question whether a large decrease in U.S. foreign assets did occur.
C) there is no question that a large decrease in U.S. foreign assets did occur.
D) there is no question that there was almost no change in U.S. foreign assets.
E) there is no question that rising exports exceeded U.S. foreign debt.

Question 29

In 1929, government purchases accounted for

A) only 18.5 percent of U.S. GNP.
B) only 8.5 percent of U.S. GNP.
C) 28.5 percent of U.S. GNP.
D) 38.5 percent of U.S. GNP.
E) 48.5 percent of U.S. GNP.

Question 30

In a closed economy, private saving, , is equal to

A) I - (G - T).
B) I + (G - T).
C) I + (G + T).
D) I - (G + T).
E) I + (G - T) + C.

Question 31

Which one of the following expressions is the MOST accurate?

A) CA = EX - IM
B) CA = IM - EX
C) CA = EX = IM
D) CA = EX + IM
E) CA - IM = EX

Question 32

Government purchases currently take up about

A) 17 percent of U.S. GNP, and this share has not changed much since the late 1950s.
B) 38 percent of U.S. GNP, and this share has not changed much since the late 1950s.
C) 18 percent of U.S. GNP, and this share has been increasing since the late 1950s.
D) 18 percent of U.S. GNP, and this share has been decreasing since the late 1950s.
E) 25 percent of U.S. GNP, and this share has been decreasing since the late 1950s.

Question 33

In the United States over the past sixty years, the fraction of GNP devoted to consumption has fluctuated in a range of about

A) 42 to 49 percent.
B) 32 to 39 percent.
C) 22 to 29 percent.
D) 82 to 89 percent.
E) 62 to 70 percent.

Question 34

A country's current account

A) balance equals the change in its net foreign wealth.
B) balance equals the change in its foreign wealth.
C) surplus equals the change in its foreign wealth.
D) deficit equals the change in its foreign wealth.
E) balance equals its GNP.

Question 35

Government purchases are defined as

A) only goods purchased by federal, state, or local governments.
B) all goods and services purchased by the federal government.
C) all goods and services purchased by the federal or state government.
D) all goods and services purchased by the federal, state, or local government.
E) goods and services purchased from the government.

Question 36

An open economy

A) can save only by building up its capital stock.
B) can save only by acquiring foreign wealth.
C) cannot save either by building up its capital stock or by acquiring foreign wealth.
D) can save either by building up its capital stock or by acquiring foreign wealth.
E) can save by avoiding excessive imports.

Question 37

In an open economy, private saving, , is equal to

A) I - CA + (G - T).
B) I + CA - (G - T).
C) I + CA + (G - T).
D) I - CA - (G - T).
E) I + CA + (G + T).

Question 38

Which of the following is FALSE about private savings and government savings?

A) S^P = Y - T - C
B) Unlike private saving decisions, government saving decisions are often made with an eye toward their effect on output and employment.
C) Total savings (S) = S^P +
D) The national income identity can help us to analyze the channels through which government saving decisions influence macroeconomic conditions.
E) None of the above; all statements are true.

Question 39

Investment is usually

A) more variable than consumption.
B) less variable than consumption.
C) as variable as consumption.
D) a larger component of the GNP than consumption.
E) It is hard to tell from the data whether investment is more or less variable than consumption.

Question 40

In the United States, (gross) investment has fluctuated between ________ of GNP in recent years.

A) 2 and 12 percent
B) 11 and 22 percent
C) 22 and 32 percent
D) 32 and 42 percent
E) 42 and 52 percent

Question 41

An American buys a Japanese car, paying by writing a check on an account with a bank in New York. How would this be accounted for in the balance of payments?

A) current account, a Japanese good import
B) current account, a U.S. good import
C) financial account, a U.S. asset import
D) financial account, a U.S. asset export
E) a current account as a U.S. good import and a financial account, a U.S. asset export

Question 42

The profits of a Spanish factory with British owners are

A) counted in Spain's GNP.
B) not part of Britain's GDP.
C) counted in Britain's GDP.
D) part of Spain's GNP.
E) counted in Spain's GDP and are a part of Britain's GNP.

Question 43

What is the national income identity for a closed economy?

Question 44

The position of the United States current account balance in 2015 was

A) lent roughly 6 percent of its GNP, resulting in a large current account surplus.
B) borrowed roughly 3 percent of its GNP, leading to a large current account deficit.
C) achieved a currant account balance of zero.
D) borrowed roughly 10 percent of its GNP, leading to a large current account deficit.
E) borrowed less then 5 percent of its GNP, leading to a large current account surplus.

Question 45

What is the national income identity for an open economy?

Question 46

You travel to Paris and pay for a $100 dinner with your credit card. How is this accounted for in the balance of payments?

A) current account, French service import
B) current account, U.S. good export
C) financial account, U.S. asset export
D) financial account, U.S. asset import
E) financial account, French asset export

Question 47

Assume in a closed economy:
C = 50 + 0.6 (Y - T)
G = 15
I = 15
T = 2
(a) Calculate Y at equilibrium
(b) Calculate C
(c) Assume the economy is open
EX = 4 + 3EP /P
IM = 8 + 0.1 (Y - T) - 2EP /P
E = 3
P = 1
P = 1.5
Find equilibrium Y.

Question 48

Assume in a closed economy:
C = 40 + 0.8(Y - T)
G = 10
I = 20
T = 0, where T are taxes.
(a) Calculate Y at equilibrium.
(b) Calculate C, I, and G at equilibrium.
(c) Now assume the economy is open with exports and imports activities,
EX = 5 + 4EP /P
IM = 10 + 0.1 (Y - T) - 3EP /P
E = 3
P = 1.5
P = 2
Find equilibrium Y.

Question 49

Which one of the following statements is FALSE?

A) The United States had accumulated substantial foreign wealth by the early 1980s.
B) The 1980s witnessed a sustained current account deficit of proportions unprecedented in the twentieth century.
C) In 1989, the country became a net debtor to foreigners for the first time since World War I.
D) U.S. foreign debt has continued to grow and now stands at 40 percent of GNP.
E) The U.S. foreign debt was paid off in the 1990s, allowing the U.S. to attain a current account surplus. However, the deficit has returned in recent years.

Question 50

Fill in the following table.

Question 51

Discuss the values of private saving in closed and open economies.

Question 52

A U.S. citizen buys a newly issued share of stock in England, paying for his order with a check, which the British company deposits in its own U.S. bank account in New York. How is this transaction accounted for in the balance of payments?

A) financial account, U.S. asset import
B) current account, U.S. service import
C) current account, British good export
D) financial account, British asset import
E) financial account, U.S. asset export

Question 53

Fill in the following table.

Question 54

The services British capital provides in Spain are a service export from Britain

A) therefore they are subtracted from British GDP in calculating British GNP.
B) therefore they are added to Spanish GDP in calculating Spanish GDP.
C) therefore they are added to British GDP in calculating British GNP.
D) therefore they are added to Spanish GNP in calculating Spanish GDP.
E) therefore they are subtracted from Spanish GNP.

Question 55

The official settlements balance or balance of payments is the sum of

A) the current account balance, and the capital account balance, less the non-reserve portion of the financial account balance.
B) the current account balance and the capital account balance.
C) the current account balance, the capital account balance, the non-reserve portion of the financial account balance, the statistical discrepancy.
D) the current account balance and the non-reserve portion of the financial account balance.
E) the current account balance and the interest in all investments.

Question 56

Fill in the following table.

Question 57

The German government carries out an official foreign exchange intervention in which it uses dollars held in an American bank to buy French currency from its citizens. How is this accounted for in the balance of payments?

A) current account, French good export
B) current account, German good import
C) financial account, French asset export
D) financial account, German asset export
E) financial account, German asset import

Question 58

The United States issues a $10,000 debt forgiveness to Argentina. How is this accounted for in the balance of payments?

A) financial account, U.S. asset import
B) current account, Argentina transfer payment
C) current account, U.S. service export
D) capital account, U.S. transfer payment
E) current account, Argentina good import

Question 59

Every international transaction automatically enters the balance of payments

A) once either as a credit or as a debit.
B) twice, once as a credit and once as a debit.
C) once as a credit.
D) twice, both times as debit.
E) three times, once as a credit, once as a debit, and once as an exchange.

Question 60

What can one learn from the following figure?

Question 61

How can changes in the market price of wealth previously acquired alter a country's net foreign wealth?

Question 62

Which of the following is TRUE about current cost method and market value method?

A) They are used by the BEA to place current values on foreign indirect investments.
B) These methods lead to the same valuations.
C) Based on the current cost method, the BEA's 2015 estimate of U.S. net foreign wealth was -$7,280.6 billion.
D) The market value cost method is preferred by the BEA.
E) Foreign direct investments of the U.S. are valued at their original purchase price.

Question 63

Unilateral transfers between countries are

A) long-term loans.
B) part of national income, but not part of the current account
C) part of the current account, but not a part of national income.
D) known for reducing the income of capital owners.
E) international gifts or payments that do not correspond to the purchase of any good, service, or asset.

Question 64

Consider how the United States balance of payments accounts are affected when U.S. banks forgive two billion in debt owed to them by the government of Argentina.

Question 65

Which of the following statements about the central bank is TRUE?

A) Only the central bank may hold foreign reserves and intervene officially in exchange markets.
B) Central banks have little power to affect macroeconomic conditions.
C) Today, central banks' reserves consist largely of gold.
D) The Federal Reserve holds only a small level of official reserve assets other than gold.
E) Central banks never inject money into the economy.

Question 66

Discuss the two different methods the Bureau of Economic Analysis (BEA) uses to place current values on foreign direct investments.

Question 67

How does an economy's central bank manage the supply of money through official reserve transactions?

Question 68

How do we allocate statistical discrepancy among the current, capital, and financial accounts?

A) We have no way of knowing exactly how to allocate this discrepancy.
B) Depend on the degree of certainty which we attribute to these accounts.
C) Divide it evenly amongst the three accounts.
D) Depend on the convention adopted by the specific financial institution.
E) Statistical discrepancy signals human errors made when dealing with financial accounts.

Question 69

"The balance of payments is seldom in balance in practice." Discuss.

Question 70

What types of international transactions are recorded in the balance of payment accounts?

Question 71

What can one learn from Figure 13-2 from the text, shown below?

Question 72

"If the simple rule of double-entry bookkeeping holds true, the Balance of payments is always in balance." Discuss.