6.1: Balance of Payments and Accounts

Question 1

Balance of Trade

Answer 1

Shows a country’s exports and imports

Question 2

Trade Surplus

Answer 2

Exported more than imported

Question 3

Trade Deficit

Answer 3

Imported more than exported

Question 4

Balance of Payments(BOP)

Answer 4

Summary of a country’s international trade

Summaries are within a given year in the domestic country’s currency

Question 5

What are balance payments are made up of what?

Answer 5

two accounts current account (CA) and capital and financial account (CFA)

Question 6

What is the current account (CA) made of?

Answer 6

-Trades in Goods and Services (Net Exports)
- Investment Income
- Net transfers

Question 7

Trades in Goods and Services

Answer 7

Differences b/tw a nations exports of its goods and services vs. its imports of good and services

Question 8

Investments Income

Answer 8

income from the factors of production including payments made to foreign investors

Question 9

Net Transfer

Answer 9

money flows from the private or public sector

Question 10

Capital and Financial Account (CFA)

Answer 10

measures the purchases and sale of financial assets aboard . Purchases of things that continue to make money.

American buys a Japanese bond

Question 11

Net Capital Outflow

Answer 11

the difference b/tw the purchase of foreign assets and domestic assets purchased by foreigners

Question 12

Financial Account Surplus

Answer 12

Inflow > Outflow

Question 13

Financial Account Deficit

Answer 13

Inflow < Outflow

Question 14

What is the sum of the CA & CFA

Answer 14

0

Question 15

Why does the CA & CFA balance out to 0?

Answer 15

Money that leaves the country must come back as either foreign purchases of goods/services (exports) or foreign purchases of assets. When one country buys more exports than it imports, that ‘extra’ money is used by foreigners to purchase domestic financial assets

Question 16

CA or CFA, Credit or Debit: Bill, American, invest $20 million in ski resorts in Canada

Answer 16

CFA, Debit

Question 17

CA or CFA, Credit or Debit: Korean company sell vests to the US Military

Answer 17

Debit, CA

Question 18

CA or CFA, Credit or Debit: US company Boeing, sells twenty 747 to France

Answer 18

CA Credit

Question 19

CA or CFA, Credit or Debit: Chinese company buys a mall in San Deigo

Answer 19

CFA Credit

Question 20

CA or CFA, Credit or Debit: A person illegally sends money to their family in Bora Bora

Answer 20

CA Debit

Question 21

CA or CFA, Credit or Debit: German investor buys $50,000 of US Treasury Bonds

Answer 21

Credit CFA

Question 22

CA or CFA, Credit or Debit: Italian tourist spends 5 million in the US while American tourist 8 million in Italy

Answer 22

CA Debit

Question 23

U.S. incomes increases relative to other countries. Does the balance of payment move towards surplus or deficit?

Answer 23

U.S citizens have more disposable income

Balance of Payment moves towards deficit

Question 24

If the U.S. dollar depreciates relative to other countries does the balance of payment move towards surplus or deficit?

Answer 24

Surplus, because U.S. exports become more desirable

Question 25

A country can have an increased surplus in its balance of trade as a result of…

A) an increase in domestic inflation
B) declining imports and inclining exports
C) higher tariffs imposed by its trading partners
D) an increase in capital flow
E) an appreciating currency

Answer 25

B