Question 1

International crowding out in the U.S.economy occurs when

Accepted Answer

When U.S. interest rates are relatively high, it attracts foreign investment, causing a higher demand for the dollar and thus a strengthening of the dollar. This makes U.S. exports more expensive and less competitive in foreign markets, leading to a decrease in demand for U.S. goods and services and a decrease in net exports, which is known as international crowding out. Option A is incorrect because a weaker dollar would actually make U.S. exports cheaper and more competitive in foreign markets. Option B is incorrect because strengthening the yen would only affect Japan's economy, not the U.S. economy.

Question 2

A nation's net international investment position moves toward surplus when

Accepted Answer

A nation's net international investment position measures the difference between its total foreign assets and its total foreign liabilities. When a nation runs a current account surplus, it is receiving more income from its foreign investments and trading activities than it is paying out. This ultimately leads to an accumulation of foreign assets and a movement towards a surplus in the net international investment position.

Question 3

Which of the following would give rise to a debit in the balance of payments?

Accepted Answer

When dividends are paid to foreigners, it represents an outflow of funds from the domestic economy, hence leading to a debit in the balance of payments. Options A, B, and D, on the other hand, represent inflows of foreign funds into the domestic economy, leading to a credit in the balance of payments.

Question 4

Exports are recorded in the balance of payments table of the exporting nation as

Accepted Answer

Exports are considered as earnings for the country, hence they are recorded as current account credits in the balance of payments table.

Question 5

When nations can run sizable balance of payments deficits,this indicates that the flexible exchange rate system ________ subject to government intervention,which describes exchange rates ________.

Accepted Answer

At the present time, the flexible exchange rate system allows for government intervention, as evidenced by the fact that nations can run sizable balance of payments deficits. Before 1973, when the world was operating under a fixed exchange rate system, governments had more control over exchange rates and were less likely to allow for large deficits.

Question 6

In the last years of the 1980s exports increased dramatically.The effects on the U.S.economy include,ceteris paribus,

Accepted Answer

An increase in exports generally leads to higher demand for domestically produced goods, which can decrease unemployment as more workers are needed to meet the demand. Higher demand can also lead to higher prices due to increased consumption. Additionally, to combat inflationary pressures from higher prices, the central bank may raise interest rates to cool down the economy.

Question 7

Foreign borrowing is

Accepted Answer

Foreign borrowing is represented by the net exports (NX) term in the national accounts, but with a negative sign, indicating the borrowing from abroad to finance the excess of imports over exports.

Question 8

If U.S.firms sell some of their holdings of Treasury bills to other nations,this is recorded in the U.S.balance of payments table as a

Accepted Answer

When U.S. firms sell Treasury bills to other nations, it means foreign entities are investing in the U.S., which is recorded as a capital account credit in the U.S. balance of payments. This reflects an inflow of capital from abroad.

Question 9

If the United States imports another good in exchange for assets transferred from an American bank to a foreign bank,in the U.S.balance of payments table

Accepted Answer

When the United States imports goods, it records a debit in the current account, increasing the current account deficit. However, if this import is financed by transferring assets from an American bank to a foreign bank, it is recorded as a credit in the capital account, increasing the capital account surplus by an equivalent amount. Thus, the increase in the current account deficit is offset by an increase in the capital account surplus, leaving the overall balance of payments unaffected.

Question 10

During the second quarter of 1989 it is believed that Japanese investors bought a significant proportion of U.S.corporate stocks and bonds sold during this period.The required purchase of dollars

Accepted Answer

When Japanese investors bought U.S. stocks and bonds, they needed to exchange yen for dollars, providing U.S. citizens with yen, which could be used to purchase imported goods from Japan.

Question 11

In 1988,the United States had a large current account deficit but an ORT surplus because

Accepted Answer

A current account deficit is when a country's imports exceed its exports, which can lead to a deficit in the balance of payments. An ORT surplus is when a country's income from overseas investments is greater than the income foreigners earn on domestic investments. In 1988, the US had a current account deficit but an ORT surplus because the capital account surplus (money flowing into the US from foreign investment) was greater than the current account deficit. This means that even though the US was importing more than it was exporting, it was attracting more investment from foreign countries than it was investing abroad.

Question 12

A nation's net international investment position is

Accepted Answer

A nation's net international investment position is the difference between all foreign assets owned by a nation's citizens and domestic assets owned by foreign citizens. This includes assets such as stocks, bonds, real estate, and other investments. It is a comprehensive measure of a nation's economic relationship with the rest of the world and reflects the country's level of openness to international trade and investment.

Option B is incorrect because it refers to the current account balance, which is the difference between a country's exports and imports of goods and services. Option C is also incorrect because the net international investment position and the current account balance are different measures. Option D is incorrect because policy-driven interest rate changes can affect a nation's net international investment position by altering the flow of capital in and out of the country.

Question 13

The "official reserve transactions balance" will be positive when

Accepted Answer

The "official reserve transactions balance" is the net change in official U.S. reserve assets resulting from U.S. government purchases and sales of foreign currencies. If the current and capital accounts are in surplus, it means that the U.S. is receiving more foreign currency than it is spending on foreign assets. This excess foreign currency would be used to purchase and increase U.S. official reserve assets, resulting in a positive official reserve transactions balance. Therefore, option D is the correct answer.

Question 14

A U.S.balance of payments deficit puts ________ pressure on the foreign price of the dollar,which,under a flexible exchange rate system,tends to ________ that deficit.

Accepted Answer

A U.S. balance of payments deficit puts downward pressure on the foreign price of the dollar, which, under a flexible exchange rate system, tends to eliminate that deficit by making U.S. goods cheaper for foreigners and foreign goods more expensive for Americans, thereby reducing the deficit.

Question 15

The payment of veterans benefits to U.S.servicemen retired in the Philippines would be included in ________ section in the calculation of the U.S.balance of payments.

Accepted Answer

Payments of veterans benefits to U.S. servicemen retired in the Philippines are considered transfers and are part of the current account, not the capital account. The current account includes transactions like goods, services, income, and current transfers.

Question 16

Which of the following would give rise to a credit in the balance of payments?

Accepted Answer

An increase in foreign bank loans to U.S. companies represents an inflow of capital into the U.S., which is recorded as a credit in the balance of payments.

Question 17

The ballooning of the U.S.foreign debt to 500 billion dollars by 1988 implied that

Accepted Answer

The answer of The ballooning of the U.S.foreign debt to...

Question 18

The "trilemma problem" implies that countries that opt for

Accepted Answer

The trilemma problem, also known as the impossible trinity, states that a country cannot simultaneously have fixed exchange rates, free capital flow, and an independent monetary policy. If a country opts for fixed exchange rates, it gives up control of domestic monetary policy, making it difficult to adjust interest rates to combat inflation or recession. Therefore, option A is the best choice.

Question 19

The foreign exchange rate refers to

Accepted Answer

The foreign exchange rate refers to the amount of one nation's money that can be obtained in exchange for a unit of another nation's currency. It represents the value of one currency in relation to another and is used for international trade and investment transactions.

Question 20

Can a nation have in its balance of payments a current account deficit at the same time as a less-than-equal capital account surplus?

Accepted Answer

It is possible for a nation to have a current account deficit and a less-than-equal capital account surplus at the same time. In this scenario, the nation would have an overall deficit in its balance of payments. While it is true that current and capital accounts must both balance, they do not have to balance each other out exactly. As long as the overall balance of payments balances, there can be deficits or surpluses in individual accounts.

Quiz 7: International Trade, exchange Rates, and Macroeconomic Policy