Question 1

A family from New York City eats in a restaurant in Mexico City. In the accounting for U.S. international transactions, this transaction would appear in the _____, and it would be entered as a payment _____ foreigners.

Accepted Answer

The transaction of a family from New York City eating in a restaurant in Mexico City is a part of the current account in U.S. international transactions since it involves the exchange of goods and services between the two countries. As the family is making a payment to foreigners (i.e. the restaurant in Mexico City), it would be entered as a payment to foreigners in the current account.

Question 2

A financial investor from Los Angeles purchases bonds issued by the government of Peru. In the accounting for U.S. international transactions, this transaction would appear in the _____, and it would be entered as a payment _____ foreigners.

Accepted Answer

This transaction involves the purchase of foreign assets (bonds issued by the government of Peru) by a U.S. resident, which is recorded in the financial account of the U.S. balance of payments. It is entered as a payment to foreigners because the U.S. investor is sending money abroad to purchase the bonds.

Question 3

A country has a capital account deficit if the balance on the:

Accepted Answer

The answer of A country has a capital account deficit...

Question 4

The balance between spending flowing into a country from other countries and spending flowing out of that country to other countries is the:

Accepted Answer

The balance between spending flowing into a country from other countries and spending flowing out of that country to other countries is known as the balance of payments. It includes the current account, capital account, and financial account. The balance of payments is an important economic indicator that reflects a country's international economic position.

Question 5

A current account surplus occurs when:

Accepted Answer

A current account surplus occurs when the balance on the current account is positive, meaning that the total value of exports exceeds the total value of imports, resulting in a net inflow of money into the country. Options B, C, and D are all incorrect as they reflect situations where there is a current account deficit, meaning that the country is spending more on imports than it is earning from exports.

Question 6

If a country has a positive balance of payments on the current account, then it must:

Accepted Answer

A positive balance of payments on the current account indicates that a country is exporting more than it is importing, leading to a surplus. To balance this, the financial account (which includes investments, loans, and banking transactions) typically moves in the opposite direction, showing a deficit as the country invests abroad or reduces foreign investments in the domestic economy.

Question 7

In 2010, the $471 billion deficit on the U.S. current account was offset by a surplus of $255 billion on financial account. This difference is the result of a:

Accepted Answer

A statistical discrepancy is a difference between a country's current and financial accounts that is caused by errors or omissions in data reporting rather than by actual economic transactions. In this case, the $216 billion difference between the current and financial accounts is likely a result of incomplete or inaccurate reporting of financial flows.

Question 8

Money flows into the United States from other countries as a result of:

Accepted Answer

Money flows into the United States from other countries as a result of transfer payments from foreign sources to U.S. residents. These can include remittances from individuals working abroad to their families in the U.S., foreign aid, or other transfers not associated with the purchase of goods or services.

Question 9

A statement of spending that flows into and out of the country for purchases of assets during a particular period is the nation's:

Accepted Answer

The financial account in a country's balance of payments records the purchases and sales of financial assets that flow into and out of the country. This includes investments in foreign stocks, bonds, and real estate, distinguishing it from the current account, which deals with trade in goods and services, income, and current transfers.

Question 10

A family from Peru eats in a restaurant in Salt Lake City. In the accounting for U.S. international transactions, this transaction would appear in the _____, and it would be entered as a payment _____ foreigners.

Accepted Answer

The transaction involves the transfer of a service (restaurant meal) between a Peruvian family (foreigners) and a U.S. business, which would be categorized under the current account of U.S. international transactions. As the U.S. business received payment from foreigners for the service provided, it would be entered as "payment from foreigners" in the current account.

Question 11

A country has a financial account surplus if the balance on the:

Accepted Answer

A financial account surplus occurs when the balance on the financial account is positive, indicating that the country is receiving more investment from abroad than it is sending out.

Question 12

A current account surplus is generally a result of:

Accepted Answer

Current account surplus refers to the situation when the value of a country's exports exceeds its imports. This means that more foreign currency is entering the country than leaving it, resulting in a surplus in the current account. A large influx of foreign investment income and sales of stock in U.S. companies to citizens of foreign countries may contribute to a surplus in capital account, but not necessarily in the current account. Therefore, options A and B are incorrect.

Question 13

When there is a deficit in the U.S. balance of payments on the current account, we pay for the difference by:

Accepted Answer

When there is a deficit in the U.S. balance of payments on the current account, it means that the country is importing more goods and services than it is exporting. This creates a shortfall in the amount of currency leaving the country in exchange for foreign currency. To make up for this difference, the U.S. government can sell assets to other countries, such as Treasury bonds or real estate, as a way to bring in more foreign currency and balance the current account. This option of selling assets to other countries is known as capital outflow.

Question 14

A surplus in the current account means there will be:

Accepted Answer

A surplus in the current account typically means that the country is exporting more than it is importing, leading to an inflow of foreign currency. To balance this, there is usually a corresponding deficit in the financial account, as the excess currency is used for investments abroad or to pay off foreign debts.

Question 15

Money flows into the United States from other countries as a direct result of:

Accepted Answer

When foreign countries purchase goods and services from the United States, they have to pay for them using U.S. dollars. This increases the demand for U.S. dollars, causing their value to appreciate, and ultimately resulting in an inflow of money into the United States.

Question 16

A deficit in the current account means there will be:

Accepted Answer

A deficit in the current account generally leads to a surplus in the financial account, as countries with current account deficits often finance these deficits by borrowing from abroad or selling domestic assets to foreign investors, which are recorded in the financial account.

Question 17

A Peruvian financial investor purchases a sporting goods store in Colorado Springs. In the accounting for U.S. international transactions, this transaction would appear in the _____, and it would be entered as a payment _____ foreigners.

Accepted Answer

This transaction involves a financial investor from Peru purchasing a U.S. store, and therefore falls under the financial account of U.S. international transactions. The payment is made from the U.S. to the foreign investor, so it would be entered as a payment from foreigners.

Question 18

A current account deficit exists when:

Accepted Answer

A current account deficit occurs when the value of imports and other expenditures that flow out of a country exceed the value of exports and other receipts that flow into the country, resulting in a negative balance on the current account. Therefore, Choice A is the best option.

Question 19

A _____ balance on the financial account means a _____.

Accepted Answer

A positive balance on the financial account means that a country is receiving more investment from foreign countries than it is sending out, which is indicative of a financial account surplus. This is because the financial account records international transactions involving assets and investments, while the current account records transactions involving merchandise and services.

Question 20

A current account deficit is generally a result of:

Accepted Answer

A current account deficit occurs when a country imports more goods and services than it exports, leading to a net outflow of funds from the economy. This is commonly seen as a negative indicator because it suggests that a country is consuming more than it is producing, leading to a reliance on foreign sources of funding. The other options do not directly contribute to a current account deficit.

Quiz 19: Open-Economy Macroeconomics

A family from New York City eats in a restaurant in Mexico City. In the accounting for U.S. international transactions, this transaction would appear in the _, and it would be entered as a payment _ foreigners.

A financial investor from Los Angeles purchases bonds issued by the government of Peru. In the accounting for U.S. international transactions, this transaction would appear in the _, and it would be entered as a payment _ foreigners.