Question 1

In the balance of payments statement, a current account surplus will be matched by a

Accepted Answer

A current account surplus indicates that a country is exporting more than it is importing, leading to an inflow of foreign currency. This surplus must be balanced by an outflow in the capital and financial accounts, hence a deficit in these accounts, to maintain the overall balance in the balance of payments.

Question 2

Which of the following appears as a positive item on the balance of payments accounts for the United States?

Accepted Answer

The purchase of U.S. Treasury bonds by a foreign bank is considered a capital inflow, which appears as a positive item on the balance of payments because it represents foreign investment into the United States.

Question 3

$$\begin{array} { | l | r | } 
\hline \text { U.S. goods exports } & + \$ 390 \
\hline \text { U.S. goods imports } & - 498 \
\hline \text { U.S. service exports } & + 133 \
\hline \text { U.S. service imports } & - 107 \
\hline \text { Net investment income } & + 12 \
\hline \text { Net transfers } & - 22 \
\hline \text { Capital account } & - 5 \
\hline \text { Foreign purchases of U.S. assets } & + 156 \
\hline \text { U.S. purchases of foreign assets } & - 59 \
\hline
\end{array}$$ The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All ?gures are in billions of dollars. The balance of trade in goods and services was a(n)

Accepted Answer

The balance of trade in goods and services is calculated by adding the exports and subtracting the imports of both goods and services. For goods, the U.S. has exports of $390 billion and imports of $498 billion, resulting in a deficit of $108 billion. For services, the U.S. has exports of $133 billion and imports of $107 billion, resulting in a surplus of $26 billion. Combining these, the total balance of trade in goods and services is a deficit of $82 billion ($108 billion deficit in goods offset by a $26 billion surplus in services).

Question 4

$$\begin{array} { | l | r | } 
\hline \text { U.S. goods exports } & + \$ 390 \
\hline \text { U.S. goods imports } & - 498 \
\hline \text { U.S. service exports } & + 133 \
\hline \text { U.S. service imports } & - 107 \
\hline \text { Net investment income } & + 12 \
\hline \text { Net transfers } & - 22 \
\hline \text { Capital account } & - 5 \
\hline \text { Foreign purchases of U.S. assets } & + 156 \
\hline \text { U.S. purchases of foreign assets } & - 59 \
\hline
\end{array}$$ The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All ?gures are in billions of dollars. What does the ?gure for net investment income indicate?

Accepted Answer

Net investment income represents the net amount of income earned from foreign investment activities, including interest, dividends, and reinvested earnings on American foreign investments, minus the amount paid out to foreign investors on their U.S. assets. Therefore, choice C is correct: the net investment income figure shows the net amount Americans received as interest and dividends on existing American investments abroad.

Question 5

Which of the following shows the net difference between how much Americans forgave in debts owed to them by foreigners compared with how much foreigners forgave debts owed to them by
Americans?

Accepted Answer

The capital account in a country's balance of payments includes debt forgiveness. It records the net change in ownership of national assets, which includes the forgiveness of debts by foreigners to the country and vice versa, showing the net difference in debts forgiven.

Question 6

A trade deﬁcit means a net

Accepted Answer

A trade deficit occurs when a country imports more goods and services than it exports, meaning there is a net inflow of goods and services.

Question 7

When a U.S. agribusiness company sells 10,000 units of cow vaccine to a company in France, this transaction will represent a(n)

Accepted Answer

When a U.S. company sells goods abroad, it represents an inflow of money to the U.S., which is recorded on the current account of the U.S. balance of payments.

Question 8

When a U.S. importer buys 100,000 pairs of pants from a Hong Kong company, this transaction will represent a(n)

Accepted Answer

When the U.S. importer buys 100,000 pairs of pants from a Hong Kong company, it represents an outflow of money on the current account of the U.S. balance of payments. The current account records transactions in goods and services, and an import of goods represents an outflow of money from the domestic economy to a foreign country.

Question 9

In one year the United States had a current account deﬁcit of $461 billion. The balance on the capital account was −$8 billion. What was the balance on the ﬁnancial account?

Accepted Answer

By definition, the sum of the current account, capital account, and financial account balances must equal zero. Therefore, we can use the formula:
financial account balance = -(current account balance + capital account balance)
financial account balance = -(461 billion - 8 billion)
financial account balance = -453 billion
However, the question asks for the balance on the financial account, not the opposite. To get the balance in the correct direction, we need to switch the sign to positive:
financial account balance = $453 billion
Therefore, the answer is B, +$469 billion.

Question 10

$$\begin{array} { | l | r | } 
\hline \text { U.S. goods exports } & + \$ 390 \
\hline \text { U.S. goods imports } & - 498 \
\hline \text { U.S. service exports } & + 133 \
\hline \text { U.S. service imports } & - 107 \
\hline \text { Net investment income } & + 12 \
\hline \text { Net transfers } & - 22 \
\hline \text { Capital account } & - 5 \
\hline \text { Foreign purchases of U.S. assets } & + 156 \
\hline \text { U.S. purchases of foreign assets } & - 59 \
\hline
\end{array}$$ The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All ?gures are in billions of dollars. The ?gure for net transfers indicates that the United States

Accepted Answer

The figure for net transfers being negative (-$22 billion) indicates that the United States sent a net amount of $22 billion in remittances or transfers to the rest of the world, rather than receiving it.

Question 11

Which one of the following is part of the ﬁnancial account on the U.S. balance of payments?

Accepted Answer

The financial account on the U.S. balance of payments includes transactions that involve the purchase or sale of assets, such as stocks, bonds, and real estate. Therefore, U.S. purchases of assets abroad fall under the financial account.

Question 12

$$\begin{array} { | l | r | } 
\hline \text { U.S. goods exports } & + \$ 390 \
\hline \text { U.S. goods imports } & - 498 \
\hline \text { U.S. service exports } & + 133 \
\hline \text { U.S. service imports } & - 107 \
\hline \text { Net investment income } & + 12 \
\hline \text { Net transfers } & - 22 \
\hline \text { Capital account } & - 5 \
\hline \text { Foreign purchases of U.S. assets } & + 156 \
\hline \text { U.S. purchases of foreign assets } & - 59 \
\hline
\end{array}$$ The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All ?gures are in billions of dollars. The data indicate that there was a trade

Accepted Answer

The U.S. goods exports are less than goods imports (\$390 billion exports vs. \$498 billion imports), indicating a trade deficit in goods. Conversely, U.S. service exports exceed service imports (\$133 billion exports vs. \$107 billion imports), indicating a trade surplus in services.

Question 13

A nation's annual balance of payments statement must always balance because

Accepted Answer

The balance of payments statement always balances because all international transactions must be settled in one way or another, whether it be through the exchange of goods and services or through financial transactions. In other words, every transaction that creates a credit (e.g. export of goods, receipt of foreign investment) must have a corresponding debit (e.g. import of goods, payment of foreign debt) to ensure that the overall balance is zero.

Question 14

Which of the following transactions represents an inﬂow of money on the ﬁnancial account of the U.S. balance of payments?

Accepted Answer

An increase in direct investment in a U.S. branch by a foreign firm represents an inflow of money on the financial account of the U.S. balance of payments. Option A represents an outflow of money (since oil is being imported), option B represents an outflow of money (since dividends are being paid out to foreigners), and option C represents an outflow of money (since U.S. citizens are purchasing foreign securities).

Question 15

Which of the following is an item in the current account balance of the United States?

Accepted Answer

The current account balance includes all international transactions related to goods and services, income, and current transfers. The purchase of insurance in the United States by a foreign company is considered a transaction related to services and is included in the current account balance. The purchase of a U.S. company, stock in a foreign corporation, and Treasury bond are related to capital and financial accounts, which are not included in the current account balance.

Question 16

$$\begin{array} { | l | r | } 
\hline \text { U.S. goods exports } & + \$ 390 \
\hline \text { U.S. goods imports } & - 498 \
\hline \text { U.S. service exports } & + 133 \
\hline \text { U.S. service imports } & - 107 \
\hline \text { Net investment income } & + 12 \
\hline \text { Net transfers } & - 22 \
\hline \text { Capital account } & - 5 \
\hline \text { Foreign purchases of U.S. assets } & + 156 \
\hline \text { U.S. purchases of foreign assets } & - 59 \
\hline
\end{array}$$ The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All ?gures are in billions of dollars. The balance on the ?nancial account was a

Accepted Answer

To calculate the balance on the financial account, we need to add the foreign purchases of U.S. assets (+156) and the U.S. purchases of foreign assets (-59), which gives us a surplus of +97 billion dollars.

Question 17

$$\begin{array} { | l | r | } 
\hline \text { U.S. goods exports } & + \$ 390 \
\hline \text { U.S. goods imports } & - 498 \
\hline \text { U.S. service exports } & + 133 \
\hline \text { U.S. service imports } & - 107 \
\hline \text { Net investment income } & + 12 \
\hline \text { Net transfers } & - 22 \
\hline \text { Capital account } & - 5 \
\hline \text { Foreign purchases of U.S. assets } & + 156 \
\hline \text { U.S. purchases of foreign assets } & - 59 \
\hline
\end{array}$$ The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All ?gures are in billions of dollars. The balance on the current account was a

Accepted Answer

The current account balance is calculated as the sum of U.S. goods exports ($390) + U.S. service exports ($133) - U.S. goods imports (-$498) - U.S. service imports (-$107) - net investment income ($12) - net transfers (-$22) = -$92 billion. Since the result is negative, the U.S. has a current account deficit of $92 billion.

Question 18

Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments in the section on

Accepted Answer

Remittances are considered net transfers, as they represent transfers of funds from one country to another by individuals, without an exchange in goods or services. Net transfers are a component of the U.S. balance of payments, which measures all economic transactions between the U.S. and foreign countries.

Question 19

When a U.S. company purchases a factory in Singapore, this will be a

Accepted Answer

When a U.S. company purchases a factory in Singapore, it represents an outflow of capital from the U.S. to Singapore. This transaction is recorded in the financial account of the U.S. balance of payments, reflecting the movement of capital rather than goods or services.

Question 20

Oﬃcial reserves used to achieve a balance of payments between nations engaging in international trade are held by

Accepted Answer

Official reserves used to achieve a balance of payments between nations engaging in international trade are held by central banks of the nations engaged in trade. Private businesses engaging in trade and commercial banks make transactions using the reserves held by central banks. Commercial banks may make loans to businesses and governments but do not hold the official reserves.

Quiz 21: The Balance of Payments, Exchange Rates, and Trade Deficits