Question 1

A country's balance of payments account is a summary of:

Accepted Answer

The balance of payments account summarizes a country's financial transactions with the rest of the world, including trade, investments, and other financial flows.

Question 2

A country's financial transactions with the rest of the world are tracked and summarized in its:

Accepted Answer

The balance of payments account is a record of a country's financial transactions with the rest of the world, including imports, exports, and capital flows.

Question 3

The section of a country's balance of payments that measures the flow of money for exports, imports, international investment income, and transfer payments is known as the _____ account.

Accepted Answer

The current account is the section of a country's balance of payments that measures the flow of money for exports, imports, international investment income, and transfer payments.

Question 4

A country's current account tracks the flows of funds for:

Accepted Answer

The current account measures the flow of goods, services, income (such as investment income), and transfer payments into and out of a country. It includes exports and imports of goods and services, earnings from investments abroad minus payments made to foreign investors, and transfer payments like remittances.

Question 5

Which of the following would NOT appear in a country's current account?

Accepted Answer

C) Capital investment abroad is part of the financial account, not the current account. The current account includes transactions like imports, exports, income from foreign investments, and transfers such as foreign aid, but not capital investments abroad.

Question 6

Which of the following would appear in a country's current account?

Accepted Answer

International investment income (such as dividends from foreign investments or payments received on loans made to foreigners) is a component of a country's current account, reflecting the income earned from abroad. Choices B, C, and D are related to the financial account, which deals with investments and financial transactions rather than the current account's focus on trade in goods and services, income, and current transfers.

Question 7

The current account balance measures _____ from trade, transfers, and investment income.

Accepted Answer

The current account balance measures the difference between a country's savings and its investment by tracking the net trade in goods and services, net earnings on cross-border investments, and net transfer payments over a defined period of time, essentially representing international money inflows minus outflows.

Question 8

The current account is the sum of:

Accepted Answer

The current account includes the trade balance (exports minus imports), net investment income (such as dividends and interest from overseas investments minus similar payments made to foreign investors), and net transfers (such as foreign aid, remittances).

Question 9

If Econia increases its exports, which of the following will happen to its current account balance?

Accepted Answer

Increasing exports leads to an inflow of funds from foreign buyers, which raises the current account balance by increasing the country's net exports.

Question 10

If Econia increases its imports, which of the following will happen to its current account balance?

Accepted Answer

When Econia increases its imports, it results in an outflow of funds to pay for those imports, which lowers the current account balance.

Question 11

If Econia decreases its imports, which of the following will happen to its current account balance?

Accepted Answer

The current account balance improves (increases) when there is a smaller outflow of funds, as this means the country is spending less on foreign imports.

Question 12

If Econia decreases its exports, which of the following will happen to its current account balance?

Accepted Answer

A decrease in exports means that Econia is selling fewer goods to other countries, which in turn means that there is a smaller inflow of funds from those sales. This smaller inflow of funds will lower the current account balance, as the current account balance is primarily composed of the trade balance (exports minus imports), net income from abroad, and net current transfers.

Question 13

When one national government provides aid to another country's government, the value of the aid shows up in what part of the balance of payments accounts of the nations?

Accepted Answer

When one national government provides aid to another country's government, the value of the aid is recorded in the current account of the balance of payments. This is because the current account includes transfers of goods, services, income, and current transfers, which encompass aid and grants.

Question 14

Macroland has a trade deficit. What impact does this have on Macroland's balance of payments accounts?

Accepted Answer

The outflow of funds will be a negative influence in the current account.A trade deficit means that Macroland is importing more goods and services than it is exporting. This means that there is a net outflow of funds from Macroland to other countries. This outflow of funds will be recorded as a negative influence in the current account of Macroland's balance of payments accounts.

Question 15

Maria is a Philippine citizen who works in Singapore, and every month she sends part of her paycheck home to family members who live in the Philippines. How does this monthly flow of funds from Singapore to the Philippines show up in Singapore's balance of payments accounts?

Accepted Answer

This monthly flow of funds from Singapore to the Philippines is recorded as a negative amount in the current account of Singapore's balance of payments. This is because it is considered a transfer payment abroad, reducing the country's net income.

Question 16

A major hurricane damages the infrastructure in Econia. In response, Macroland sends $5 million in aid to Econia. How does this show up in Macroland's balance of payments accounts?

Accepted Answer

This transaction is recorded as a negative amount in Macroland's current account because it represents a transfer payment to another country, reducing Macroland's net income and increasing its spending without receiving any goods or services in return.

Question 17

A major hurricane damages the infrastructure in Econia. In response, Macroland sends $5 million in aid to Econia. How does this show up in Econia's balance of payments accounts?

Accepted Answer

Aid from another country is recorded as a transfer payment in the recipient country's current account, increasing it because it does not require a direct economic output in exchange.

Question 18

When a citizen of one country buys shares of stock on a stock exchange in a different country, the flow of funds to cover the purchase shows up in what part of the balance of payments accounts of the nations?

Accepted Answer

When a citizen of one country buys shares of stock on a stock exchange in a different country, the transaction is recorded in the capital account of the balance of payments. This account tracks the flow of investment funds across borders, including investments in foreign stocks.

Question 19

A country's balance of payments is the sum of the _____, and the balance:

Accepted Answer

The balance of payments is the sum of the current account and the capital account, and it will always equal zero because any surplus or deficit in one account is offset by the other.

Question 20

The section of the balance of payments that tracks the money flows for changes in the international ownership of capital investments is known as the _____ account.

Accepted Answer

The capital account in the balance of payments records the money flows related to changes in the international ownership of capital investments, such as real estate, stocks, and bonds.

Quiz 33: International Finance