Question 1

balance of trade deficit results in a current account

Accepted Answer

A balance of trade deficit means that a country is importing more goods and services than it is exporting, which results in a current account deficit. This means the country is spending more money on imports than it is earning from exports, which can lead to a decrease in foreign currency reserves and potentially weaken the country's currency. In response, a country may need to take measures such as reducing imports or increasing exports to address the current account deficit. IMF intervention and World Bank loans may be options to address a current account deficit, but they are not directly caused by a balance of trade deficit.

Question 2

Tourism shows up on the ____ account.

Accepted Answer

Tourism is considered a service and falls under the current account, which includes transactions of goods and services.

Question 3

accounting statement that summarizes all the economic transactions between residents of the home country and residents of all other countries is called the

Accepted Answer

The balance of payments is a complete accounting record of all transactions between a country and the rest of the world, including those related to international trade in goods and services, financial flows, and transfers. It is divided into three main components: the current account balance, the capital account balance, and the financial account balance. The current account balance focuses on trade in goods and services, while the capital account balance consists of capital transfers and acquisitions of fixed assets. The financial account balance records flows of financial assets and liabilities, including direct investment, portfolio investment, and other investment. Overall, the balance of payments provides a comprehensive view of a country's international economic relationships and can be used to analyze trends in trade, investment, and capital flows.

Question 4

order to reduce its current-account deficit, the United States would NOT do which of the following?

Accepted Answer

To reduce the current-account deficit, the United States would need to increase savings relative to domestic investment, not decrease it as option D suggests. Options A, B, and C are all measures that could potentially help reduce the current-account deficit.

Question 5

a freely-floating exchange rate system, the sale of Japanese cars to the United States will be offset by which item on the US balance of payments?

Accepted Answer

The answer of a freely-floating exchange rate system, the sale...

Question 6

the real value of the dollar rises, the balance on current account is likely to

Accepted Answer

When the real value of the dollar rises, exports become more expensive and imports become cheaper. This leads to a decrease in the balance on current account, as the country is likely to import more and export less.

Question 7

US savings deficit can be attributed, in part, to

Accepted Answer

The growing US budget deficit contributes to the US savings deficit because the government is borrowing more money, which means there is less money available for private saving. This leads to a decrease in the overall level of saving in the US.

Question 8

Recent US trade deficits can be attributed to

Accepted Answer

The US savings deficit means that the country is borrowing money to finance its consumption, which includes importing goods. This leads to a trade deficit, where the amount spent on imports exceeds the amount earned from exports. Therefore, the recent US trade deficits can be attributed to the US savings deficit.

Question 9

most likely way to reduce the Japanese trade surplus is to

Accepted Answer

Boosting Japanese consumption would increase domestic demand for goods, which would increase imports from other countries and potentially reduce the trade surplus. Revaluing the yen would make Japanese exports more expensive and potentially reduce exports, but this strategy could also negatively affect Japanese businesses and the overall economy. Imposing quotas on imports from Japan would limit trade and potentially harm diplomatic relations. Boosting Japanese savings would not necessarily reduce the trade surplus as it does not directly address demand for imports.

Question 10

change in private domestic borrowing or lending required to keep payments in balance without adjusting official reserves is called

Accepted Answer

The change in private domestic borrowing or lending required to keep payments in balance without adjusting official reserves is called the net liquidity balance. It is the difference between the balance of payments and the change in official reserves. The balance of payments refers to the overall flow of goods, services, and capital in and out of a country. The balance on current account and the balance on capital account are two components of the balance of payments.

Question 11

a freely floating exchange rate system, if the capital account surplus for the U.S. rises, what will most likely happen to the real value of the dollar?

Accepted Answer

In a freely floating exchange rate system, an increase in the capital account surplus indicates more foreign investment in the U.S., leading to higher demand for the dollar, which typically causes the real value of the dollar to rise.

Question 12

a real value of a nation's freely floating currency increases, and the nation's current account is initially zero, its capital account will most likely be

Accepted Answer

When a nation's freely floating currency increases in value, it means that the currency has become more expensive relative to other currencies. This makes it more expensive for the nation to import goods and services, and cheaper for the nation to export goods and services. As a result, the nation's current account will move into surplus, as exports will exceed imports. To finance this surplus, the nation's capital account will also move into surplus, as foreign investors will be attracted to the higher-valued currency.

Question 13

Suppose Lufthansa buys 10 Boeing 747s for $150 million in 1991, financed by a five?year loan from the US Export?Import Bank. There is a one year grace period on principal and interest payments. Which one of the following would NOT be one of the net impacts of this sale in 1991?

Accepted Answer

The sale of Boeing 747s to Lufthansa would result in a $150 million credit to the U.S. trade account, reducing the trade deficit, not increasing it. Choices A, B, and D describe potential impacts on the U.S. balance of payments, but a sale would not increase the trade deficit.

Question 14

nation that is running a savings deficit

Accepted Answer

A nation running a savings deficit invests more domestically than it saves, requiring it to borrow from abroad to finance the excess investment.

Question 15

sale of US treasury bonds by a Frenchman shows up as

Accepted Answer

The sale of US treasury bonds by a Frenchman does not directly affect the capital account, trade account, or official reserves account in the ways described by options A, B, or C. These transactions are part of the financial account, which records investments and financial flows, rather than the capital account, trade account, or official reserves account.

Question 16

Japanese current account surplus can best be attributed to

Accepted Answer

The high rate of Japanese savings is the main reason behind the country's current account surplus. Japan has a cultural inclination towards saving which results in a higher savings rate compared to other countries. This leads to a surplus of funds that are invested in foreign countries, thereby generating significant income through interest and dividends. Additionally, Japanese households have a high degree of financial literacy and tend to invest their savings in various financial instruments, further contributing to the current account surplus.

Question 17

Which of the following accounts is the best measure of the change in private domestic borrowing or lending that is required to keep payments in balance without adjusting official reserves?

Accepted Answer

The answer of Which of the following accounts is the...

Question 18

sale of American computers to the Spanish government shows up as

Accepted Answer

The sale of American computers to the Spanish government represents an export, which will increase the value of exports on the trade account. Therefore, it would be credited on the trade account.

Question 19

a freely floating exchange rate system, if the capital account is running a deficit

Accepted Answer

In a freely floating exchange rate system, the balance of payments must balance. If the capital account is in deficit, the current account must run a surplus to offset it.

Question 20

a nation's income exceeds its spending, then which of the following would NOT result?

Accepted Answer

If a nation's income exceeds its spending, it implies that savings exceed domestic investment, leading to a current account surplus and a capital account deficit. Savings equaling domestic investment would not result in this scenario.

Quiz 5: The Balance of Payments and International Economic Linkages