Chapter 16.4

Question 1

Balance of payments

Answer 1

A record of all transactions between the residents of a country and the residents of all other countries

Question 2

Credits

Answer 2

Payments received from other countries

Question 3

Debits

Answer 3

Payments made to other countries

Question 4

What do credits in the balance of payment create?

Answer 4

Foreign demand

Question 5

What do debits in the balance of payment create?

Answer 5

Supply of domestic currency

Question 6

When does a surplus in an account occur?

Answer 6

Whenever a balance has a positive value, meaning that credits are larger than debits

Question 7

When does a deficit in an account occur?

Answer 7

Whenever a balance has a negative value, meaning that debits are larger than credits

Question 8

How is the balance of trade in goods calculated?

Answer 8

By subtracting imports from exports

Question 9

How is the balance of trade in services calculated?

Answer 9

By subtracting imports of services from exports of services

Question 10

Income in the current account

Answer 10

All inflows of rents, interest, and profits from abroad minus all outflows of rests, interest and profits

Question 11

Current transfers

Answer 11

Inflows due to transfers from abroad like gifts, remittances, foreign aid, and pensions minus outflows of the same to other countries

Question 12

What is the current account of the balance of payments a sum of?

Answer 12

The balance of trades in goods, the balance of trades in services, income inflow minus outflows and current transfer inflows minus outflows

Question 13

Capital transfers in the capital account

Answer 13

Inflows minus outflows for things like debt forgiveness, non-life insurance claims, and investment grants

Question 14

Non-produced, non-financial assets in the capital account

Answer 14

Consists of the purchase or use of natural resources that have not been produced

Question 15

What is the capital account in the balance of payments composed of?

Answer 15

Inflows minus outflows of funds for capital transfers and transactions in non-produced, non-financial assets

Question 16

What does the financial account in the balance of payments consist of?

Answer 16

Foreign direct investment, portfolio investment. reserve assets and official borrowing

Question 17

Reserve assets

Answer 17

Foreign currency reserves that the central bank can buy or sell to influence the value of the country’s currency

Question 18

Official borrowing

Answer 18

Government borrowing from abroad

Question 19

What does a current account deficit mean and how does a country pay for it?

Answer 19

A country consumes more than it produces and it pays for the extra output through a financial account surplus

Question 20

What does a current account surplus mean and how is the money used?

Answer 20

A country consumes less than it produces and part of the income generated from extra output corresponds to a financial account deficit