chapter 16

Question 1

What does the balance of payments (BOP) account for?
a) The total income of a country
b) The flow of goods and services between countries
c) The flow of money into and out of a particular country
d) The exchange rate between currencies

Answer 1

c

Question 2

Which of the following is NOT a component of the balance of payments (BOP)?
a) Current account (CA)
b) Financial account (FA)
c) Trade account (TA)
d) Net change in official reserves (OR)

Answer 2

C

Question 3

What does the current account (CA) of the balance of payments measure?
a) Net income flowing into a country from abroad
b) Net funds used to buy financial investments from abroad
c) Net change in central bank’s holdings of foreign reserves
d) Statistical discrepancy ensuring components sum to zero

Answer 3

a

Question 4

What does the financial account (FA) of the balance of payments measure?
a) Net income flowing into a country from abroad
b) Net funds used to buy financial investments from abroad
c) Net change in central bank’s holdings of foreign reserves
d) Statistical discrepancy ensuring components sum to zero

Answer 4

b

Question 5

What does the net change in official reserves (OR) of the balance of payments represent?
a) Net income flowing into a country from abroad
b) Net funds used to buy financial investments from abroad
c) Net change in central bank’s holdings of foreign reserves
d) Statistical discrepancy ensuring components sum to zero

Answer 5

c

Question 6

What is the purpose of the statistical discrepancy (SD) in the balance of payments?
a) To ensure that all transactions are accurately recorded
b) To identify errors in the balance of payments calculations
c) To make adjustments so that the components sum to zero
d) To measure the total trade deficit of a country

Answer 6

c

Question 7

What does the official settlements balance (OSB) represent?
a) The total income of a country
b) The total expenditure of a country
c) The balance of payments excluding the statistical discrepancy
d) The sum of the current account and financial account balances

Answer 7

d

Question 8

BOP requires

Answer 8

CA+FA+OR+SD=0

Question 9

What does the current account of the balance of payments include?
a) Net exports only
b) Net foreign income only
c) Net unilateral transfers only
d) Net exports, net foreign income, and net unilateral transfers

Answer 9

d

Question 10

What does net exports represent in the current account?
a) The total value of imports
b) The total value of exports
c) The difference between exports and imports
d) The sum of exports and imports

Answer 10

c

Question 11

What does net foreign income include in the current account?
a) Income made from working domestically
b) Income made from working abroad and foreign investments
c) Income made from foreign imports
d) Income made from foreign exports

Answer 11

b

Question 12

What does net unilateral transfers represent in the current account?
a) The net inflow of money where something is given in return
b) The net inflow of money where nothing is given in return
c) The net outflow of money where something is given in return
d) The net outflow of money where nothing is given in return

Answer 12

b

Question 13

Which of the following is an example of net unilateral transfers?
a) Foreign investments
b) Remittances
c) Net exports
d) Net foreign income

Answer 13

b

Question 14

The payments that migrant workers send back to their home countries are called:
a. Remittances
b. Foreign direct investment
c. Foreign portfolio investment
d. Capital outflows

Answer 14

a

Question 15

In a nation’s balance of payments, which one of the following items is always recorded as a positive entry
a. merchandise imports
b.the effect of changes in foreign currency reserves on the flow of Canadian dollars
c. Exports of service
d. Capital flows
e. Investment Income

Answer 15

c

Question 16

In a nation’s balance of payments, which one of the following items is always recorded as a
positive entry?
a. Changes in foreign currency reserves
b. Imports of goods and services
c. Military foreign aid supplied to allied nations
d. Purchases by foreign travelers visiting the country

Answer 16

d

Question 17

Which of the following capital transactions are entered as debits in the U.S. balance of payments?

a. A U.S. resident transfers $100 from his account at Credit Suisse in Basel (Switzerland) to his account at a San Francisco branch of Wells Fargo Bank.
b. A French resident transfers $100 from his account at Wells Fargo Bank in San Francisco to his Credit Suisse account in Switzerland
c. A U.S. resident sells his IBM stock to a French resident.
d. A U.S. resident sells his Credit Suisse stock to a French resident.

Answer 17

b

Question 18

Which of the following is considered a capital inflow?

a. A sale of U.S. financial assets to a foreign buyer.
b. A loan from a U.S. bank to a foreign borrower.
c. A purchase of foreign financial assets by a U.S. buyer.
d. A U.S. citizen’s repayment of a loan from a foreign bank.

Answer 18

a

Question 19

The net flow(s) is called the: value of flows of financial assets and similar claims (excluding official international reserve asset)

a. Financial account.
b. Current account.
c. Trade balance.
d. Official reserve balance.

Answer 19

a

Question 20

A country experiencing a current account surplus:

a. Needs to borrow internationally.
b. Is able to lend internationally.
c. Must also have had a surplus in its “overall” balance.
d. Must also have had a surplus in its international income payments and receipts.

Answer 20

b

Question 21

What is the relationship between net exports and the current account according to macroeconomic accounting?
a) Net exports and the current account are unrelated
b) Net exports are the largest component of the current account, so the current account is approximately net exports
c) Net exports have no impact on the current account
d) The current account is the largest component of net exports

Answer 21

b

Question 22

What is the relationship between trade deficits and current account deficits?
a) Countries with trade deficits have current account surpluses
b) Countries with trade deficits have current account deficits
c) Countries with trade surpluses have current account deficits
d) Trade deficits have no impact on the current account

Answer 22

b

Question 23

The current account balance (CA):

a. Equals the sum of national savings and domestic capital formation.
b. Equals net foreign investment.
c. Equals the domestic production of goods and services.
d. All of the above.

Answer 23

b

Question 24

What does the equation CA = National saving - Domestic investment represent?
a) CA = (Private saving + public saving) - Domestic investment
b) CA = National saving - Domestic investment
c) CA = National saving + Domestic investment
d) CA = Domestic investment - National saving

Answer 24

a

Question 25

Under the interpretation of CA = (Private saving + public saving) - Domestic investment, what does a CA deficit indicate?
a) The country is saving more than it is investing domestically
b) The country is borrowing from abroad to fund domestic investment due to insufficient domestic savings
c) The country is investing more domestically than it is saving
d) The country is running a surplus in both private and public savings

Answer 25

b

Question 26

According to the provided information, what does CA = Net foreign investment primarily signify?
a) The difference between domestic savings and domestic investment
b) The net inflow or outflow of funds from abroad to finance domestic investments
c) The balance of trade between a country and its trading partners
d) The difference between domestic production and domestic spending on goods and services

Answer 26

b

Question 27

A nation is called a lender if:

a. Its domestic investment is larger than foreign investment
b. Its current account is in surplus during a time period.
c. Its current account is in deficit during a time period.
d. Its net stock of foreign assets is positive.

Answer 27

b

Question 28

If Boeing barters a $100 million plane to Mexico in exchange for $100 million worth of hotel services on the Mexican coast, then the transaction would ______

a. contribute to a U.S. current account surplus because it is en export of merchandise that is paid for through
an item in the financial account
b. leave the U.S. current account unchanged because it is both an import and an export
c. contribute to a U.S. current account deficit because it is an import
d. leave the U.S. current account unchanged because the transaction affects no items in this account

Answer 28

b

Question 29

A credit item in the balance of payments is:
a. an item for which the country must be paid.
b. any loan given out by the country.
c. any imported item.
d. an item that creates a monetary claim owed to a foreigner.

Answer 29

a

Question 30

A debit item in the balance of payments is:
a. any foreign aid received by the country.
b. an item for which the country must pay.
c. any exported item.
d. an item that creates a monetary claim on a foreigner.

Answer 30

b

Question 31

A country’s balance of payments records:
a. the prices that a country pays for its imports and the prices that the country receives for its imports.
b. the flows of value between that country’s residents and residents of the rest of the world during a period of time.
c. capital gains and losses on a country’s international assets.
d. the value of a country’s holdings of foreign assets, minus the value of foreign holdings of the country’s assets

Answer 31

b

Question 32

_____ are money-like assets that are held by governments and that are recognized by
governments as fully acceptable for payments between them.
a. Official international reserve assets
b. Unofficial international assets
c. Official domestic assets
d. Unofficial reserve assets

Answer 32

a

Question 33

The net value of flows of goods, services, income, and unilateral transfers is described as the:
a. capital account balance.
b. current account balance.
c. trade balance.
d. official reserve balance.

Answer 33

b

Question 34

he net value of flows of financial assets and similar claims (excluding official international
reserve asset flows) is called the:
a. financial account balance.
b. current account balance.
c. trade balance.
d. official reserve balance

Answer 34

a

Question 35

Which of the following would tend to contribute to a U.S. current account surplus?
a. The United States makes a unilateral tariff reduction on imported goods.
b. The United States cuts back on American military personnel stationed in Japan.
c. U.S. tourists travel in large numbers to Asia.
d. Russian vodka becomes increasingly popular in the United States

Answer 35

b

Question 36

n the balance of payments, the statistical discrepancy is used to:
a. ensure that the sum of the components of the balance of payments is 0.
b. ensure that the value of imports equals the value of exports.
c. show how a balance-of-payments deficit is funded.
d. obtain an accurate account of a balance-of-payments surplus.

Answer 36

a

Question 37

The current account balance does NOT equal:
a. the difference between gross domestic product and domestic expenditure.
b. the difference between national saving and domestic investment.
c. net foreign investment.
d. the difference between government saving and government investment.

Answer 37

d

Question 38

A large, persistent current account deficit signals what about the health of an economy?
a. A definite economic crisis in the future
b. The potential for an economic crisis in the future related to government debt
accumulation or other problems that limit saving
c. The potential for an economic crisis in the future related to government debt
accumulation or an investment boom
d. There will be a boom in investment that increases growth

Answer 38

b

Question 39

What part of the current account is approximately equal to the current account for most
developed countries?
a. Net income from foreigners
b. Net unilateral transfers
c. Net exports
d. Financial account

Answer 39

c

Question 40

In September 2005, exports of goods from the U.S. decreased $3.3 billion to $73.4 billion,
and imports of goods increased $3.8 billion to $144.5 billion. This increased the deficit in:
a. the balance of payments.
b. the financial account.
c. the current account.
d. unilateral transfers

Answer 40

c

Question 41

What does a large, persistent current account (CA) deficit, particularly exceeding 5% of a country’s gross domestic product (GDP), suggest?
a) Economic stability and future prosperity
b) Potential for a future economic crisis
c) Efficient allocation of resources
d) Strong government budget management

Answer 41

b

Question 42

Which of the following scenarios indicates a potential danger of a current account deficit?
a) Borrowing used to fund a productive investment boom
b) Borrowing used to fund government deficits or supplement low private saving
c) A decrease in public spending
d) An increase in private saving rates

Answer 42

b

Question 43

What could be potential causes of a large current account deficit?
a) Decreased government spending and increased private saving
b) Large persistent government budget surpluses
c) Low private saving and negative public savings due to large government budget deficits
d) Reduced investment activities and increased public savings

Answer 43

c

Question 44

What does the financial account of the balance of payments encompass?
a) It includes only net foreign direct investment.
b) It covers a wide range of investments.
c) It focuses solely on government investments.
d) It comprises domestic investment activities.

Answer 44

b

Question 45

What does net foreign direct investment represent in the financial account?
a) It indicates the net flow of money from individuals or institutions buying foreign assets.
b) It reflects the net flow of money from selling financial assets to foreigners.
c) It signifies the net flow of money where companies invest directly in businesses in other countries.
d) It denotes the net flow of money from buying stocks and bonds issued by foreign entities.

Answer 45

c

Question 46

What does net foreign portfolio investment indicate in the financial account?
a) It shows the net flow of money from buying stocks and bonds issued by foreign entities.
b) It signifies the net flow of money where companies invest directly in businesses in other countries.
c) It reflects the net flow of money from individuals or institutions buying foreign assets.
d) It denotes the net flow of money from selling financial assets to foreigners.

Answer 46

a

Question 47

How is the financial account useful for tracking foreign investment flows?
a) By analyzing domestic savings rates
b) By monitoring government expenditure
c) By tracking the net flow of money into or out of the country for various types of investments
d) By examining trade balances

Answer 47

c

Question 48

What does a positive flow in the financial account indicate?
a) More money is leaving the country from buying foreign assets than coming into the country from selling financial assets to foreigners.
b) More money is coming into the country from selling financial assets to foreigners than leaving the country from buying foreign assets.
c) The country is experiencing a deficit in foreign investment.
d) The country is experiencing a surplus in government investments

Answer 48

b