Question 1

What is the relationship among the current account,the financial account,and the balance of payments?

Accepted Answer

The answer of What is the relationship among the current...

Question 2

When a Canadian investor buys a bond issued in a foreign country,
A)the balance on the capital account decreases.
B)the balance on the current account decreases.
C)the balance on the financial account decreases.
D)the balance of trade decreases.
E)the statistical discrepancy decreases.

Accepted Answer

When a Canadian investor buys a bond issued in a foreign country, it represents a financial transaction and therefore affects the balance on the financial account. The balance on the capital account represents non-financial transactions (such as debt forgiveness or transfers of assets) and would not be affected. The current account represents imports and exports of goods and services, and the purchase of a bond does not directly impact this. The balance of trade only considers exports and imports of goods, and again is not directly affected by the purchase of a bond. The statistical discrepancy refers to errors and omissions in balance of payments data and would not be impacted by this transaction.

Question 3

If the current account is in surplus and the capital account is zero,then
A)the financial account must be in deficit.
B)the balance of trade must be in deficit.
C)the balance of payments must be in deficit.
D)there is a capital inflow.
E)the balance of services must be in deficit.

Accepted Answer

When the current account is in surplus and the capital account is zero, it implies that the country is exporting more than it is importing, leading to an inflow of foreign currency. Since the balance of payments (which includes the current account, capital account, and financial account) must always balance, a surplus in the current account with a zero capital account necessitates a deficit in the financial account. This is because the surplus funds are being invested abroad or used to pay off foreign debt, leading to an outflow in the financial account.

Question 4

Which of the following would result in positive net exports for Canada?
A)Exports of goods = $725 billion Imports of goods = $790 billion
Exports of services = $350 billion
Imports of services = $260 billion
B)Exports of goods = $625 billion Imports of goods = $625 billion
Exports of services = $300 billion
Imports of services = $375 billion
C)Exports of goods = $550 billion Imports of goods = $575 billion
Exports of services = $275 billion
Imports of services = $300 billion
D)All of the above will result in a trade surplus.

Accepted Answer

In option A, the total exports ($725 billion + $350 billion = $1075 billion) exceed the total imports ($790 billion + $260 billion = $1050 billion), resulting in positive net exports for Canada.

Question 5

The balance of payments can only be zero if Canada has incurred overall balance of payments deficits.

Accepted Answer

The balance of payments can be zero if a country has a balance of payments surplus equal to its balance of payments deficits. Therefore, it is possible for Canada to have a zero balance of payments even if it has incurred overall balance of payments deficits.

Question 6

If the nominal exchange rate between the Canadian dollar and the American dollar is 0.89 Canadian dollars per American dollar,how many American dollars are required to buy a product that costs 2.5 Canadian dollars?
A)$1.32
B)$2.23
C)2.5
D)$2.75
E)$2.81

Accepted Answer

The answer of If the nominal exchange rate between the...

Question 7

Net foreign investment is a measure of net capital outflows,equal to capital outflows minus capital inflows in a given period of accounting.

Accepted Answer

Net foreign investment is indeed calculated as capital outflows minus capital inflows in a given period of accounting.

Question 8

What is the difference between net exports and the current account balance?

Accepted Answer

The answer of What is the difference between net exports...

Question 9

The Canadian ________ account records relatively minor transactions,such as migrants' transfers; and sales and purchases of nonproduced,nonfinancial assets.
A)current
B)capital
C)financial
D)balance of trade
E)official settlements

Accepted Answer

The Canadian capital account records relatively minor transactions, such as migrants' transfers and sales and purchases of nonproduced, nonfinancial assets. This is distinct from the current account, which deals with trade in goods and services, and the financial account, which deals with investments and financial instruments.

Question 10

You're traveling in Ireland and are thinking about buying a new digital camera.You've decided you'd be willing to pay $125 for a new camera,but cameras in Ireland are all priced in euros.If the exchange rate is 0.85 euros per dollar,what's the highest price in euros you'd be willing to pay for a camera?
A)105 euros
B)106.25 euros
C)110.15 euros
D)143.75 euros
E)147 euros

Accepted Answer

The answer of You're traveling in Ireland and are thinking...

Question 11

Net exports equals the balance of trade surplus.

Accepted Answer

Net exports is the difference between a country's exports and imports (X-M), while balance of trade surplus is the situation where a country's exports exceed its imports. Net exports can be either positive (trade surplus) or negative (trade deficit).

Question 12

Which of the following would decrease the balance on the current account?
A)a decrease in foreign direct investment
B)a decrease in the amount of aid money the government sends abroad
C)a decrease in imports
D)a sale of Canadian natural resource rights
E)None of the above will increase the balance on the current account.

Accepted Answer

The answer of Which of the following would decrease the...

Question 13

If the balance on the current account is $842 billion and the balance on the financial account is -$603 billion,what is the balance on the capital account,assuming no statistical discrepancy?
A)$1,445 billion
B)$842 billion
C)$239 billion
D)$0
E)-$239 billion

Accepted Answer

The balance on the capital account is calculated as the negative of the sum of the current account and financial account balances, assuming no statistical discrepancy. Therefore, it is -$239 billion ($842 billion - $603 billion = $239 billion, then negated to match the sign convention for capital account balances).

Question 14

If the balance on the current account in Canada is $75 billion,which of the following is most likely to be true?
A)The balance on the financial account is negative.
B)The trade balance is negative.
C)Net foreign investment is negative.
D)The balance on the capital account is positive.
E)The balance of trade is negative.

Accepted Answer

According to the balance of payments accounting, the current account balance plus the capital and financial account balances must equal zero. Therefore, if the current account balance is positive, it means that either the capital account or the financial account must be negative. Since the question only provides information on the current account balance, it is impossible to determine the status of the trade balance or net foreign investment. However, it is safe to assume that the balance on the capital account is positive, meaning that the most likely answer is A, i.e., the balance on the financial account is negative.

Question 15

How does an increase in a country's exchange rate affect its balance of trade?
A)An increase in the exchange rate raises imports,reduces exports,and reduces the balance of trade.
B)An increase in the exchange rate reduces imports,raises exports,and reduces the balance of trade.
C)An increase in the exchange rate reduces imports,raises exports,and increases the balance of trade.
D)An increase in the exchange rate raises imports,reduces exports,and increases the balance of trade.
E)A country's exchange rate has no affect on its balance of trade.

Accepted Answer

An increase in a country's exchange rate results in a higher value of its currency, making its exports more expensive and imports cheaper. This leads to a decrease in exports and an increase in imports, thus reducing the balance of trade.

Question 16

Suppose the majority of the shares of British Airways stock were sold to a firm in Canada.Assuming all else remains constant,this will
A)decrease the balance of the Canadian financial account.
B)decrease foreign direct investment in Canada.
C)decrease the balance of the Canadian current account.
D)increase net portfolio investment in Canada.
E)create a capital inflow in Canada.

Accepted Answer

The answer of Suppose the majority of the shares of...

Question 17

The purchase of foreign stocks and bonds by a Canadian brokerage firm is an example of capital inflows to Canada.

Accepted Answer

The purchase of foreign stocks and bonds by a Canadian brokerage firm represents capital outflows from Canada, as funds are leaving the country to invest in foreign assets.

Question 18

Why would the Canadian trade deficit be larger than the Canadian current account deficit?

Accepted Answer

The answer of Why would the Canadian trade deficit be...

Question 19

Table 14.1
 
-Refer to Table 14.1.Use the information in the table to prepare a balance of payments account and find the value of the statistical discrepancy.Assume that the balance on the capital account is zero.

Accepted Answer

The answer of Table 14.1
 
-Refer to Table 14.1.Use the...

Question 20

You're traveling in Ireland and are thinking about buying a new digital camera.You've decided you'd be willing to pay $125 for a new camera,but cameras in Ireland are all priced in euros.If the camera you're looking at costs 115 euros,under which of the following exchange rates would you be willing to purchase the camera? (Assume no taxes or duties are associated with the purchase.)
A)0.56 euros per dollar
B)0.66 euros per dollar
C)0.76 euros per dollar
D)0.87 euros per dollar
E)0.92 euros per dollar

Accepted Answer

The answer of You're traveling in Ireland and are thinking...

Quiz 14: Macroeconomics in an Open Economy

What is the relationship among the current account,the financial account,and the balance of payments?

When a Canadian investor buys a bond issued in a foreign country,

If the current account is in surplus and the capital account is zero,then

Which of the following would result in positive net exports for Canada?

The balance of payments can only be zero if Canada has incurred overall balance of payments deficits.

If the nominal exchange rate between the Canadian dollar and the American dollar is 0.89 Canadian dollars per American dollar,how many American dollars are required to buy a product that costs 2.5 Canadian dollars?

Net foreign investment is a measure of net capital outflows,equal to capital outflows minus capital inflows in a given period of accounting.

What is the difference between net exports and the current account balance?

The Canadian ________ account records relatively minor transactions,such as migrants' transfers; and sales and purchases of nonproduced,nonfinancial assets.

Net exports equals the balance of trade surplus.

Which of the following would decrease the balance on the current account?

If the balance on the current account is $842 billion and the balance on the financial account is -$603 billion,what is the balance on the capital account,assuming no statistical discrepancy?

If the balance on the current account in Canada is $75 billion,which of the following is most likely to be true?

How does an increase in a country's exchange rate affect its balance of trade?

Suppose the majority of the shares of British Airways stock were sold to a firm in Canada.Assuming all else remains constant,this will

The purchase of foreign stocks and bonds by a Canadian brokerage firm is an example of capital inflows to Canada.

Why would the Canadian trade deficit be larger than the Canadian current account deficit?

Table 14.1 -Refer to Table 14.1.Use the information in the table to prepare a balance of payments account and find the value of the statistical discrepancy.Assume that the balance on the capital account is zero.