Question 1

The current account of the balance of payments is calculated as:

Accepted Answer

The current account of the balance of payments includes the trade balance (the difference between exports and imports), net factor income from abroad (income earned by domestic factors of production from foreign sources minus income earned by foreign factors of production from domestic sources), and net unilateral transfers (donations, grants, and other transfers). This sum gives the overall balance of trade in goods and services, as well as income and unilateral transfers, between a country and the rest of the world. Option A is incorrect because transfers are only a part of the current account and not the whole thing. Option B is incorrect because it only considers national income and expenditure, not trade and transfers with other countries. Option D is incorrect because it refers to the difference between total domestic production and the domestic demand for goods and services, not the balance of trade and transfers with other countries.

Question 2

In national accounts data, which is the largest share of GNEs?

Accepted Answer

Consumption is typically the largest share of Gross National Expenditures (GNEs) in national accounts data, followed by investment and government consumption. While the exact proportions may vary by country and year, consumption usually accounts for the biggest share of GNEs.

Question 3

The term net unilateral transfers refers to:

Accepted Answer

Net unilateral transfers typically include gifts, charitable contributions, and aid that are sent abroad minus the same types of transfers received from abroad. This reflects the net flow of such transfers between a nation and the rest of the world.

Question 4

Asset exports occur when domestic entities:

Accepted Answer

Asset exports refer to the sale of domestic assets to foreign entities, which implies borrowing from foreign entities. Therefore, choice B is the correct answer. Choice A refers to saving internationally, which is not related to asset exports. Choice C and D are also not related to asset exports.

Question 5

Gross national expenditure in a closed economy is defined as:

Accepted Answer

Gross national expenditure (GNE) includes all spending within a closed economy, which includes personal consumption spending, government spending, and investment spending. However, it does not include exports as they are part of the country's gross domestic product (GDP) calculation. Option A is incorrect because it only includes government spending. Option C is incorrect because it includes exports, which are not part of GNE. Option D is incorrect because it only accounts for the production of goods and services, not the actual spending on them.

Question 6

Income paid to factors is called:

Accepted Answer

Income paid to factors refers to the total amount paid to all the factors of production (land, labor, capital, and entrepreneurship) in an economy. This is also known as national income. Option B refers to the additional value created by a business during the production process. Option C refers to the difference between a country's exports and imports. Option D refers to the balance of trade in goods and services, as well as factor income and transfer payments.

Question 7

Net factor income from abroad is defined as:

Accepted Answer

Net factor income from abroad refers to the income earned by domestic factors of production (such as labor and capital) from abroad, minus the income earned by foreign factors of production within the domestic economy. This includes factors of production that are used to produce goods and services both domestically and abroad. Choice B correctly describes this concept.

Question 8

When calculating GDP in an open economy, we adjust GNE by:

Accepted Answer

When calculating GDP in an open economy, we adjust GNE (Gross National Expenditure) by subtracting imports and adding exports. This is because GNE includes all expenditures on goods and services produced by residents, but imports are produced by foreign residents and therefore do not contribute to domestic GDP. On the other hand, exports are produced by domestic residents and contribute to GDP, but are not part of GNE. So we subtract imports (which are part of GNE but not GDP) and add exports (which are part of GDP but not GNE) to get the total GDP.

Question 9

In a closed economy, income generated from production is equal to:

Accepted Answer

The answer of In a closed economy, income generated from...

Question 10

In a closed economy in which no international economic activity occurs, which of the following is NOT true?

Accepted Answer

Value added in the economy is not equal to the sum of consumer spending, business investment, and government purchases. Rather, value added is equal to the difference between the value of output produced and the cost of intermediate goods and services used in production.

Question 11

In an open economy, GNI is equal to:

Accepted Answer

GNI, or Gross National Income, is defined as GDP, plus net factor income from abroad (i.e., income earned by domestic residents from investments abroad minus income earned by foreign residents from investments in the domestic economy). This can also be expressed as GDP plus factor services exports minus factor services imports. Therefore, choice C is the correct answer.

Question 12

Summaries of international flows of goods and assets are recorded in a nation's:

Accepted Answer

The balance of payments accounts track all international transactions of a nation, including the flows of goods, services, and assets. It is a record of all economic transactions between domestic and foreign residents, including imports and exports of goods and services, financial transactions, and transfers such as foreign aid or remittances. The national income and product accounts measure a nation's economic activity, but do not track international transactions in the same level of detail. Balances with the IMF and balance on international indebtedness are specific measures that do not capture the full picture of international flows of goods and assets.

Question 13

Which of the following factors is NOT part of the current account of a country?

Accepted Answer

Social Security contributions are not considered part of the current account of a country. The current account includes exports, imports, and unilateral transfers, which are essentially gifts or aid received from other countries.

Question 14

Government consumption expenditure includes the following, EXCEPT government spending on:

Accepted Answer

Social Security is classified as a transfer payment, not a government consumption expenditure.

Question 15

In the flow diagram representing an open economy, which of the following is true?

Accepted Answer

GNE (Gross National Expenditure) includes both domestic and foreign spending on goods and services produced in the economy. The trade balance (TB) represents the difference between exports and imports. Therefore, GNE + TB will give the total spending on goods and services produced within the economy, which is equal to GDP (total domestic production).

Question 16

Tracking and measuring international flows of goods and assets are based on principles of:

Accepted Answer

International flows of goods and assets are tracked and measured using accounting principles, specifically through the balance of payments accounting system.

Question 17

The personal consumption expenditure includes all of the following, EXCEPT spending by private households on:

Accepted Answer

Capital stock refers to investments in equipment, machinery, and infrastructure by businesses and governments. Personal consumption expenditure only includes spending by private households on final goods and services, including both durable and non-durable goods.

Question 18

The circular flow concept of a closed economy helps to explain why:

Accepted Answer

The circular flow concept shows that all the money earned by households (in the form of wages, rent, interest, and profit) is spent on consuming goods and services produced by firms. This spending by households becomes the revenue for firms, which they use to pay for factors of production (such as labor, capital, and materials). As a result, GDP, GNI, and GNE (which are all measures of income) are equal in a closed economy.

Question 19

When calculating gross national disposable income in an open economy, we adjust gross national expenditure by:

Accepted Answer

Gross national disposable income in an open economy is calculated by adjusting gross national expenditure by adding in net income earned from foreign sources, plus the trade balance, plus net unilateral transfers from abroad. This reflects the flow of income from foreign sources into the domestic economy, and the flow of income from the domestic economy to foreign sources. Options A, C, and D do not include all the necessary adjustments for an open economy.

Question 20

The disposable income of a nation is known as gross national disposable income, which can be defined as:

Accepted Answer

Gross national disposable income includes all income earned by residents of a nation, regardless of where it is earned (including from abroad), and factors in transfers such as gifts and aid. Option B, C, and D do not accurately define gross national disposable income.

Quiz 16: National and International Accounts: Income, Wealth, and the Balance of Payments