Question 1

A nation's balance on the current account is equal to its exports less its imports of:
A)goods and services.
B)goods and services, minus Canadian purchases of assets abroad.
C)goods and services, plus net investment income and net transfers.
D)goods and services, plus foreign purchases of assets in Canada.

Accepted Answer

A nation's balance on the current account includes not only the trade balance (exports minus imports of goods and services) but also net investment income and net transfers, which are flows of money between residents and non-residents that do not involve any exchange of goods or services. Therefore, option C is the most comprehensive and accurate choice. Options A and B are too narrow and do not include all the relevant components, while option D includes a category that is not part of the current account (foreign purchases of assets in Canada would be recorded in the capital account).

Question 2

The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars.  Refer to the above data.The sign of the official settlement account indicates that:
A)Zabella exported more services than it imported in 2014.
B)Zabella imported more merchandise than it exported.
C)there has been an out payment of $5 billion to official international reserves in 2014.
D)there has been an in payment of $10 billion from the stock of official international reserves in 2014.

Accepted Answer

The answer of The following table shows the balance of...

Question 3

The following table shows the trade between Canada and Transylvania for the year 2014.All the figures are in billions of dollars.  Refer to the above information.In 2014, Canada had a current account:
A)surplus of $3 billion.
B)deficit of $11 billion.
C)surplus of $10 billion.
D)surplus of $15 billion.

Accepted Answer

The answer of The following table shows the trade between...

Question 4

Which of the following is not included in the current account of a nation's balance of payments?
A)its merchandise exports
B)its merchandise imports
C)its net investment income
D)its capital inflows

Accepted Answer

Capital inflows are a part of the capital account in a nation's balance of payments, not the current account. The current account includes merchandise exports, merchandise imports, and net investment income.

Question 5

The items in a hypothetical country's balance of payments account were: current account deficit -$100; capital account surplus +$85.The value of official reserves was:
A)+$15.
B)-$15.
C)+$185.
D)-$185.

Accepted Answer

The balance of payments is the sum of the current account, capital account, and changes in official reserves. In this case, the current account deficit is -$100 and the capital account surplus is +$85. To balance the accounts, the value of official reserves must increase by +$15, making the total balance of payments zero.

Question 6

In the balance of payments of Canada, capital inflows are recorded as:
A)a positive entry.
B)a current account entry.
C)official reserves.
D)net investment income.

Accepted Answer

Capital inflows are recorded as a positive entry in the balance of payments, indicating an increase in foreign investment in Canada. This is because a capital inflow is the transfer of financial assets into Canada from foreign entities, which increases the country's financial account surplus.

Question 7

If a nation's merchandise exports are $55 billion, while its merchandise imports are $50 billion, we can conclude with certainty that this nation is experiencing a:
A)balance of trade surplus.
B)balance of payments surplus.
C)positive balance on current account.
D)positive balance on goods and services.

Accepted Answer

A balance of trade surplus occurs when a country's exports exceed its imports. In this case, the nation's merchandise exports of $55 billion exceed its merchandise imports of $50 billion, indicating a balance of trade surplus.

Question 8

The following table shows the balance of payments statement of Canada for 2014.All the figures are in billions of dollars.  Refer to the above information.In 2014, Canada's balance of services was:
A)$3 billion.
B)-$9 billion.
C)$15 billion.
D)-$6 billion.

Accepted Answer

The answer of The following table shows the balance of...

Question 9

It may be misleading to label a trade deficit as "unfavourable" or "adverse" because:
A)the multiplier does not apply to a trade deficit.
B)it increases our aggregate output and employment.
C)Canadian consumers benefit from a trade deficit during the period it occurs.
D)all of the above reasons.

Accepted Answer

The answer of It may be misleading to label a...

Question 10

The following table shows the balance of payments statement for the hypothetical nation of Zabella in 2014.All the figures are in billions of dollars.  Refer to the above data.Given the scenario, it can be said that Zabella experienced a balance of payments:
A)deficit of $5 billion in 2014.
B)surplus of $10 billion in 2014.
C)deficit of $10 billion in 2014.
D)surplus of $5 billion in 2014.

Accepted Answer

The answer of The following table shows the balance of...

Question 11

A market in which the money of one nation is exchanged for the money of another nation is a:
A)resource market.
B)financial market.
C)futures market.
D)foreign exchange market.

Accepted Answer

The foreign exchange market is specifically designed for the exchange of one nation's currency for another nation's currency. The other options, such as resource markets and futures markets, do not necessarily involve currency exchange. The financial market is a broader term that includes various types of markets, including the foreign exchange market.

Question 12

Evidence of a chronic balance of payments deficit is:
A)a decline in amount of the nation's currency held by other nations.
B)an excess of exports over imports.
C)diminishing reserves of foreign currencies.
D)an increase in the international value of the nation's currency.

Accepted Answer

A chronic balance of payments deficit occurs when a country consistently imports more goods and services than it exports, leading to a depletion of foreign currency reserves. Therefore, the correct answer is C, a diminishing reserve of foreign currencies. A decline in the amount of the nation's currency held by other nations (A) is typically a sign of a currency depreciation or weakening, not necessarily a balance of payments deficit. An excess of exports over imports (B) would suggest a trade surplus, which is the opposite of a balance of payments deficit. An increase in the international value of the nation's currency (D) would also suggest an improvement in the balance of payments, as it would make imports cheaper and exports more expensive.

Question 13

The balance of payments must always balance, because:
A)capital account surplus means the outflow of capital.
B)current account surpluses automatically generate transfer of assets to foreigners.
C)current account deficits automatically generate transfer of assets from foreigners.
D)current account deficits automatically generate transfer of assets to foreigners while current account surpluses automatically generate transfer of assets from foreigners.

Accepted Answer

The balance of payments must always balance because current account deficits, which refer to a deficit in trade and investment income, automatically generate transfer of assets to foreigners, while current account surpluses, which refer to a surplus in trade and investment income, automatically generate transfer of assets from foreigners. This means that the net inflow and outflow of funds must balance out in order for the overall balance of payments to be zero. The capital account surplus or deficit, which refers to the flow of financial investments, also affects the balance of payments but does not necessarily balance out the current account.

Question 14

The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars.  Refer to the above data.Zabella's balance on goods and services shows a:
A)$5 billion deficit.
B)$5 billion surplus.
C)$10 billion surplus.
D)$15 billion deficit.

Accepted Answer

The answer of The following table shows the balance of...

Question 15

The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars.  Refer to the above data.In 2014, Zabella's balance on the capital account shows a:
A)deficit of $10 billion.
B)surplus of $5 billion.
C)deficit of $28 billion.
D)surplus of $13 billion.

Accepted Answer

The answer of The following table shows the balance of...

Question 16

The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars.Current Account:  Refer to the above data.Zabella's is experiencing a balance of trade:
A)deficit of $10 billion.
B)surplus of $5 billion.
C)surplus of $10 billion.
D)deficit of $5 billion.

Accepted Answer

The answer of The following table shows the 2012 balance...

Question 17

In the balance of payments of Canada, an outflow of Canadian holdings of official international reserves is recorded as a:
A)current account entry.
B)negative entry.
C)net transfer.
D)positive entry.

Accepted Answer

The answer of In the balance of payments of Canada,...

Question 18

Which one of the following will not directly affect Canada's balance on current account?
A)an increase in merchandise imports
B)an increase in capital outflows from Canada
C)a decrease in net investment income
D)an increase in imports of services

Accepted Answer

Capital outflows do not directly affect Canada's balance on current account. The balance on current account measures trade in goods and services and net investment income, not capital flows.

Question 19

If a nation's balance on current account is a negative $20 billion, while its balance on capital account is a positive $16.5 billion, we can conclude with certainty that this nation is experiencing:
A)a merchandise trade deficit.
B)a merchandise trade surplus.
C)a reduction in its stock of foreign currency.
D)a balance of payments surplus.

Accepted Answer

The answer of If a nation's balance on current account...

Question 20

A deficit on the current account:
A)normally causes a surplus on the capital account.
B)normally causes a deficit on the capital account.
C)has no relationship to the capital account.
D)means that a nation is not making any international transfers.

Accepted Answer

A deficit on the current account typically leads to a surplus on the capital account because when a country spends more on foreign trade than it earns, it must cover the deficit by borrowing from foreign sources or selling domestic assets to foreigners, which are recorded as inflows in the capital account.

Quiz 18: Part A: The Balance of Payments and Exchange Rates

A nation's balance on the current account is equal to its exports less its imports of:

The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars. Refer to the above data.The sign of the official settlement account indicates that:

The following table shows the trade between Canada and Transylvania for the year 2014.All the figures are in billions of dollars. Refer to the above information.In 2014, Canada had a current account:

Which of the following is not included in the current account of a nation's balance of payments?

The items in a hypothetical country's balance of payments account were: current account deficit -$100; capital account surplus +$85.The value of official reserves was:

In the balance of payments of Canada, capital inflows are recorded as:

If a nation's merchandise exports are $55 billion, while its merchandise imports are $50 billion, we can conclude with certainty that this nation is experiencing a:

The following table shows the balance of payments statement of Canada for 2014.All the figures are in billions of dollars. Refer to the above information.In 2014, Canada's balance of services was:

It may be misleading to label a trade deficit as "unfavourable" or "adverse" because:

The following table shows the balance of payments statement for the hypothetical nation of Zabella in 2014.All the figures are in billions of dollars. Refer to the above data.Given the scenario, it can be said that Zabella experienced a balance of payments:

A market in which the money of one nation is exchanged for the money of another nation is a:

Evidence of a chronic balance of payments deficit is:

The balance of payments must always balance, because:

The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars. Refer to the above data.Zabella's balance on goods and services shows a:

The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars. Refer to the above data.In 2014, Zabella's balance on the capital account shows a:

The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars.Current Account: Refer to the above data.Zabella's is experiencing a balance of trade:

In the balance of payments of Canada, an outflow of Canadian holdings of official international reserves is recorded as a:

Which one of the following will not directly affect Canada's balance on current account?

If a nation's balance on current account is a negative $20 billion, while its balance on capital account is a positive $16.5 billion, we can conclude with certainty that this nation is experiencing:

A deficit on the current account: