Deck 10: The Balance of Payments

Question 1

If an American purchases a ticket from Scandinavian Airlines, paying by a personal check, which of the following entries would be the result?

A) a credit in Norway's service account
B) a debit in Norway's service account
C) a credit in the U.S. unilateral transfers account
D) a debit in the U.S. unilateral transfers account

Answer 1

a credit in Norway's service account

Question 2

In a country's balance-of-payments, which of the following transactions are debits?

A) Domestic bank balances owned by foreigners are decreased.
B) Foreign bank balances owned by domestic residents are decreased.
C) Assets owned by domestic residents are sold to nonresidents.
D) Securities are sold by domestic residents to nonresidents.

Answer 2

Domestic bank balances owned by foreigners are decreased.

Question 3

Credit items on the U.S.balance-of-payments statement result in

A) a deficit on the current account of the United States.
B) a deficit on the capital and financial account of the United States.
C) an inflow of foreign exchange for the United States.
D) an outflow of foreign exchange for the United States.

Answer 3

an inflow of foreign exchange for the United States.

Question 4

On the balance-of-payments statements, merchandise imports are classified in the

A) current account.
B) capital account.
C) unilateral transfer account.
D) official settlements account.

Question 5

The _____ tabulates the U.S.balance-of-payments.

A) U.S. International Trade Commission
B) U.S. Department of Labor
C) Council of Economic Advisors
D) U.S. Department of Commerce

Question 6

If Japanese investors purchase Treasury bills of the U.S.government, this results in a

A) debit transaction in the U.S. current account.
B) credit transaction in the U.S. current account.
C) debit transaction in the U.S. capital and financial account.
D) credit transaction in the U.S. capital and financial account.

Question 7

A credit transaction would appear on the balance-of-payments as a result of

A) the import of goods and services.
B) domestic residents touring overseas.
C) transfer payments made to foreign relatives.
D) an inflow of investment capital.

Question 8

If a resident of Japan purchases an insurance policy from the U.S.insurance company Progressive, which of the following entries would be the result?

A) a debit in the U.S. service account
B) a credit in the U.S. service account
C) a credit in Japan's unilateral transfers account
D) a debit in Japan's unilateral transfers account

Question 9

In recent years, ______ has been the world's largest international debtor

A) the United States.
B) China.
C) Japan.
D) the United Kingdom.

Question 10

A debit in the U.S.current account would be represented by

A) earnings on U.S. investments abroad flowing into the United States.
B) gifts that Americans make to the poor in Africa.
C) Chinese investors purchasing the securities of the U.S. government.
D) exports of Boeing jetliners to South Korea.

Question 11

Unlike the balance-of-payments, the balance of international indebtedness indicates the international

A) investment position of a country at a given moment in time.
B) investment position of a country over a one-year period.
C) trade position of a country at a given moment in time.
D) trade position of a country over a one-year period.

Question 12

A debit transaction would appear on the balance-of-payments as a result of

A) outflows of investment capital.
B) the export of services abroad.
C) transfer payments received by domestic residents.
D) the export of goods abroad.

Question 13

The balance of international indebtedness is a record of a country's international

A) investment position over a period of time.
B) investment position at a fixed point in time.
C) trade position over a period of time.
D) trade position at a fixed point in time.

Question 14

Which of the following would call for an inflow of payments to the United States?

A) American imports of German steel
B) gold flowing out of the United States
C) American unilateral transfers to less-developed countries
D) American firms selling insurance to British shipping companies

Question 15

Which balance-of-payments item does not directly enter into the calculation of the U.S.gross domestic product?

A) merchandise imports
B) shipping and transportation receipts
C) direct foreign investment
D) service exports

Question 16

A deficit in the U.S.current account is offset by a surplus

A) in the U.S. trade account.
B) in the U.S. balance-of-payments.
C) in the U.S. capital and financial account.
D) in the U.S. official reserve assets.

Question 17

If U.S.investors purchase Treasury bills of the British government, this results in a

A) debit transaction in the U.S. current account.
B) credit transaction in the U.S. current account.
C) debit transaction in the U.S. capital and financial account.
D) credit transaction in the U.S. capital and financial account.

Question 18

The current account of the United States includes all of the following EXCEPT

A) trade in goods and services.
B) unilateral transfers.
C) income receipts and payments.
D) gold flows between the United States and foreign central banks.

Question 19

Which of the following is classified as a credit in the U.S.balance-of-payments?

A) U.S. exports
B) U.S. gifts to other countries
C) a flow of gold out of the U.S.
D) foreign loans made by U.S. companies

Question 20

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

Question 21

In recent decades, the U.S.has generated a ___________in its ________account.

A) surplus, services
B) deficit, services
C) surplus, goods
D) surplus, current

Question 22

If General Electric Inc.pays dividends to its Canadian stockholders, this represents a

A) debit in the U.S. current account.
B) credit in the U.S. current account.
C) debit in the U.S. capital and financial account.
D) credit in the U.S. capital and financial account.

Question 23

If the United States is a net borrower from, or lender to, the rest of the world, this is best indicated by the U.S.

A) balance-of-payments position.
B) current account balance.
C) merchandise trade balance.
D) net export balance.

Question 24

A negative balance in the capital and financial account suggests that a country

A) is realizing a surplus on its current account.
B) is realizing a deficit on its current account.
C) is borrowing from the rest of the world.
D) imports more goods and services than it exports.

Question 25

Concerning the U.S.balance-of-payments statement, throughout the past 30 years

A) the current account balance and the capital account balance have moved in the opposite direction.
B) the current account balance and the capital account balance have moved in the same direction.
C) the official reserve assets of the U.S. government have shrunk to zero.
D) unilateral transfers have shrunk significantly.

Question 26

A positive balance in the capital and financial account suggests that a country

A) is realizing a surplus on its current account.
B) is realizing a deficit on its current account.
C) is lending to the rest of the world.
D) exports more goods and services than it imports.

Question 27

The value of direct investment by Ford Motor Co.in Canada is included in the U.S.

A) capital and financial account.
B) current account.
C) net export account.
D) merchandise trade account.

Question 28

Concerning the U.S.balance-of-payments statement, the sum of debits and credits on all transactions will always

A) be equal.
B) show a deficit.
C) show a surplus.
D) be unequal.

Question 29

Throughout the past 30 years, the U.S.balance-of-payments statement has indicated both

A) a positive balance on the current account and a positive balance on the capital and financial account.
B) a negative balance on the current account and a negative balance on the capital and financial account.
C) a positive balance on the current account and a negative balance on the capital and financial account.
D) a negative balance on the current account and a positive balance on the capital and financial account.

Question 30

To "balance" the U.S.balance-of-payments, U.S.Commerce Department statisticians employ

A) accounting transactions.
B) inflows or outflows of gold reserves.
C) statistical discrepancy.
D) inflows or outflows of government securities.

Question 31

When the United States imports goods and services from other countries, the United States

A) makes payments to other countries.
B) receives payments from other countries.
C) becomes a net lender to other countries.
D) receives interest income from other countries.

Question 32

Which of the following transactions would result in a credit for the United States?

A) U.S. households importing beer from German breweries
B) Chinese investors purchasing securities of the U.S. government
C) German tourists visiting Yellowstone National Park
D) U.S. construction firms contracting with Japanese architects to design their buildings

Question 33

For the United States, the largest component of its current account transactions consists of

A) payments for imports of goods and services and receipts from exports of goods and services.
B) payments for military transactions with other countries.
C) travel and transportations payments and receipts with other countries.
D) unilateral transfers to other countries and from other countries.

Question 34

In recent decades, the United States has been an example of

A) a net exporter of goods.
B) a net importer of services.
C) a net lending country.
D) a net borrowing country.

Question 35

If Japan lends more to the rest of the world than it borrows from the rest of the world, Japan is a

A) net borrowing country.
B) net lending country.
C) net exporting country of goods and services.
D) net importing country of goods and services.

Question 36

If the United States has a negative balance on its current account, it

A) is a net lender to the rest of the world.
B) is a net borrower from the rest of the world.
C) realizes a negative balance on its capital and financial account.
D) runs a surplus in the budget of the federal government.

Question 37

A Canadian lumber company purchases a sawmill in the state of Washington.On the U.S.balance-of-payments statement, this transaction appears in the

A) current account.
B) net exports account.
C) net imports account.
D) capital and financial account.

Question 38

For the U.S.balance-of-payments statement, which of the following is NOT recorded in the capital and financial account?

A) net interest income from international investments
B) purchases of Chinese stocks and bonds
C) sales of Mexican stocks and bonds
D) the acquiring of a business firm in another country

Question 39

Concerning the balance-of-payments statement, the ______ indicates the receipts from exports of goods and services sold overseas, the payments for imports of goods and services from overseas, unilateral transfers (net), and income receipts and payments (net).

A) capital and financial account
B) current account
C) official reserve asset account
D) monetary gold account

Question 40

Mary Smith, a resident of Denver, Colorado, purchases a Swiss watch in Chicago.On the U.S.balance-of-payments statement, this transaction appears on the

A) official reserve asset account.
B) net borrowing and lending account.
C) current account.
D) services account.

Question 41

The current account of the U.S.balance-of-payments does not include

A) investment income.
B) merchandise exports and imports.
C) the sale of securities to foreigners.
D) unilateral transfers.

Question 42

If an American receives dividends from the shares of stock she or he owns in Toyota, Inc., a Japanese firm, the transaction would be recorded on the U.S.balance-of-payments as a

A) capital account debit.
B) capital account credit.
C) current account debit.
D) current account credit.

Question 43

The U.S.has a balance of trade deficit when its

A) merchandise exports exceed its merchandise imports.
B) merchandise imports exceed its merchandise exports.
C) goods and services exports exceed its goods and services imports.
D) goods and services imports exceed its goods and services exports.

Question 44

If the U.S.faces a balance-of-payments deficit on the current account, it must run a surplus on

A) the official settlements account.
B) the capital and financial account.
C) either the official settlements account or the capital and financial account.
D) both the official settlements account and the capital account.

Question 45

The U.S.balance of trade position is in part determined by

A) exchange rates.
B) growth of foreign consumers' incomes.
C) relative prices in world markets.
D) All of these are correct.

Question 46

Because the United States continues to run significant ___________, some have argued that ____________ should be a reserve currency, because it is _______________.

A) current account surpluses, the Swiss franc, more fiat-based than the U.S. dollar
B) current account deficits, a cryptocurrency, a more sound money
C) capital and financial account deficits, the British pound, more highly valued now after Brexit
D) current account deficits, the Euro, more fully backed by gold than the dollar

Question 47

The United States realizes several benefits from the dollar serving as the main reserve currency of the world, including

A) Americans can buy goods at a marginally cheaper price than households in other nations who must exchange their currency with each purchase and pay a transaction cost.
B) Americans can borrow at lower interest rates for homes and automobiles.
C) the U.S. government can finance larger deficits longer and at lower interest rates.
D) All of these are correct.

Question 48

About two-thirds of the world's official foreign exchange reserves are held in

A) gold.
B) British pounds.
C) Japanese yen.
D) U.S. dollars.

Question 49

Adopting the special drawing right (SDR) as a reserve currency might possibly occur if the United States was to operate continuous bad economic policy in the form of

A) deficit spending.
B) high inflation.
C) currency depreciation.
D) All of these are correct.

Question 50

If Germany has invested over its history more in other countries than other countries have invested in Germany, then Germany is a

A) net creditor nation.
B) net debtor nation.
C) net importer of goods and services.
D) net exporter of stocks and bonds.

Question 51

Suppose an American resident earns $100,000 on a financial investment in China.This would be recorded in the __________ because ___________.

A) current account, it represents income from a capital flow from a previous year
B) capital account, it represents an inflow of funds into the United States
C) services account, it represents a type of U.S. business services export
D) None of these are correct.

Question 52

U.S.military aid granted to foreign countries is entered in the

A) merchandise trade account.
B) capital account.
C) current account.
D) official settlements account.

Question 53

Which of the following represents a problem with the Chinese yuan becoming a reserve currency?

A) China does not have an open financial market.
B) China does not have a large economy.
C) China holds too many dollars.
D) The yuan is not currently part of the SDR.

Question 54

The ______ is currently the main reserve currency of the global trading and financial system

A) Euro
B) Chinese yuan
C) British pound
D) None of these is correct.

Question 55

For the United States, a loss in its reserve currency position would likely result in which of the following?

A) imports becoming more expensive
B) lower interest rates on private debt.
C) more foreign investment in the United States
D) lower interest rates on government debt

Question 56

As the world's main reserve currency, the U.S.dollar is used throughout the world as a

A) medium of exchange.
B) unit of account.
C) store of value.
D) All of these are correct.

Question 57

If the United States government sells military hardware to Saudi Arabia, the transaction would be recorded on the U.S.balance-of-payments as a

A) current account debit.
B) current account credit.
C) capital account debit.
D) capital account credit.

Question 58

Over its history, suppose that France has borrowed more from the rest of the world than it has lent to the rest of the world.This means that France

A) has realized continuous deficits in its current account.
B) has realized continuous surpluses in its goods and services account.
C) has a very large unilateral transfers balance.
D) is a net-creditor nation.

Question 59

If the U.S.current account balance is negative

A) the United States lends to other countries who purchase goods and services from the United States.
B) the United States borrows from other countries to pay for the goods and services that the United States buys from them.
C) the U.S. balance of international indebtedness shows that the United States is a net creditor nation.
D) the U.S. balance of international indebtedness shows that the United States is a net exporting nation.

Question 60

In recent years, the two largest holders of U.S.government securities have been

A) China and Japan.
B) Mexico and Canada.
C) Brazil and Spain.
D) Germany and France.

Question 61

The balance-of-payments refers to the stock of trade and investment transactions that exists at a particular point in time.

Question 62

Reducing a current account surplus requires a country to

A) increase the government's deficit and increase private investment relative to saving.
B) increase the government's deficit and decrease private investment relative to saving.
C) decrease the government's deficit and increase private investment relative to saving.
D) decrease the government's deficit and decrease private investment relative to saving.

Question 63

Debt (-) items in the balance-of-payments correspond to anything that

A) involves receipts from foreigners.
B) involves payments to foreigners.
C) increases the domestic money supply.
D) decreases the demand for foreign exchange.

Question 64

Which of the following supports China's argument for having the SDR become a reserve currency?

A) China has a very limited financial stake in dollar-denominated financial assets.
B) China runs a trade deficit with its largest trade partner.
C) China converts surplus dollars into Japanese yen and uses them to buy Japanese government securities.
D) None of these is correct.

Question 65

Greece's position as a ___________ is because it ________.

A) net debtor, spends too much and saves too little
B) net creditor, spends too much and saves too little
C) net debtor, spends too little and saves too much
D) net creditor, spends too little and saves too much

Question 66

Assuming there is a burden from a current account deficit, that burden would have the least impact on a country if the current account deficit is used to finance

A) unemployment compensation benefits.
B) Social Security benefits.
C) expenditures on food and recreation.
D) investment in plant and equipment.

Question 67

According to researchers at the Federal Reserve, the loss of jobs associated with a deficit in the current account tends to be

A) offset by the increase of jobs associated with a surplus in the capital account.
B) reinforced by the decrease of jobs associated with a surplus in the capital account.
C) a threat to the level of employment for the economy as a whole.
D) of no long-run economic consequence for workers who lose their jobs.

Question 68

Which of the following represents a possible benefit of using a cryptocurrency like Bitcoin as a reserve currency?

A) It is not fiat money.
B) Its value is backed by gold.
C) It is highly centralized.
D) It is volatile.

Question 69

All of the following are credit items in the balance-of-payments, except

A) investment inflows.
B) merchandise exports.
C) payments for American services to foreigners.
D) private gifts to foreign residents.

Question 70

Germany's position as a ___________ is because it ________.

A) net debtor, spends too much and saves too little
B) net creditor, spends too much and saves too little
C) net debtor, spends too little and saves too much
D) net creditor, spends too little and saves too much

Question 71

Concerning a country's business cycle, rapid growth of production and employment is commonly associated with

A) large or growing trade deficits and current account deficits.
B) large or growing trade deficits and current account surpluses.
C) small or shrinking trade deficits and current account deficits.
D) small or shrinking trade deficits and current account surpluses.

Question 72

A country that is a net international debtor initially experiences

A) an augmented savings pool available to finance domestic spending.
B) a higher interest rate, which leads to lower domestic investment.
C) a loss of funds to trading partners overseas.
D) a decrease in its services exports to other countries.

Question 73

Reducing a current account deficit requires a country to

A) increase private saving relative to investment.
B) increase private consumption relative to saving.
C) increase private investment relative to consumption.
D) increase private investment relative to saving.

Question 74

When a country realizes a deficit on its current account

A) its net foreign investment position becomes positive.
B) it becomes a net demander of funds from other countries.
C) it realizes an excess of exports over imports on goods and services.
D) it becomes a net supplier of funds to other countries.

Question 75

When all of the debit or credit items in the balance-of-payments are combined

A) merchandise imports equal merchandise exports.
B) capital imports equal capital exports.
C) services exports equal services imports.
D) the total surplus or deficit equals zero.

Question 76

Reducing a current account deficit requires a country to

A) increase the government's deficit and increase private investment relative to saving.
B) increase the government's deficit and decrease private investment relative to saving.
C) decrease the government's deficit and increase private investment relative to saving.
D) decrease the government's deficit and decrease private investment relative to saving.

Question 77

The role of ________ is to direct one nation's savings into another nation's investments.

A) merchandise trade flows
B) services flows
C) current account flows
D) capital flows

Question 78

For the first time since World War I, in 1985 the United States became a net international

A) exporter.
B) importer.
C) debtor.
D) creditor.

Question 79

Credit (+) items in the balance-of-payments correspond to anything that

A) involves receipts from foreigners.
B) involves payments to foreigners.
C) decreases the domestic money supply.
D) increases the demand for foreign exchange.

Question 80

Which of the following represents a problem with the SDR yuan becoming a reserve currency?

A) The SDR does not include the U.S. dollar.
B) The SDR does not have an established settlement mechanism.
C) The SDR gets too much of its value from the Chinese yuan.
D) The SDR is only available to a small group of countries.