Deck 10: The Balance of Payments

Question 1

Which of the following is classified as a $\underline { \text { credit } }$ 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

Answer 1

U.S. exports

Question 2

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

Answer 2

C

Question 3

Which of the following would call for $\underline { \text { inpayments } }$ 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

Answer 3

American firms selling insurance to British shipping companies

Question 4

Table 10.1 gives hypothetical figures for U.S. International Transactions.
Table 10.1. U.S. International Transactions
$\begin{array}{l}\begin{array}{lll}\\\text { Transaction}\\\\\text { Merchandise imports}\\\text { Military transactions, net}\\\text { Remittances, pensions, transfers}\\\text { U.S. private assets abroad}\\\text { Merchandise exports}\\\text { Investment income, net}\\\text { U.S. government grants}\\\text { (excluding military)}\\\text { Foreign private assets in the U.S.}\\\text { Compensation of employees}\\\text { Allocation of SDR.s}\\\text { Travel and transportation receipts, net}\\\end{array}\begin{array}{c}\text { Amount }\\\text { (billions of dollars) }\\\\110 \\-5 \\-20 \\-50 \\115 \\15 \\-5 \\\\25 \\-5 \\5 \\20\end{array}\end{array}$

-Referring to Table 10.1, the $\underline { \text { goods and services } }$ balance equals:

A) $5 billion
B) $15 billion
C) $20 billion
D) $25 billion

Question 5

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 6

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 7

In a country's balance of payments, which of the following transactions are $\underline { \text { debits } }$ ?

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

Question 8

Which of the following is considered a capital $\underline { \text { inflow } }$ ?

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 9

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 10

$\underline { \text { Unlike } }$ 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 11

The value to American residents of income earned from overseas investments shows up in which account in the U.S. balance of payments?

A) Current account
B) Trade account
C) Unilateral transfers account
D) Capital account

Question 12

The U.S. balance of trade is determined by:

A) Exchange rates
B) Growth of economies overseas
C) Relative prices in world markets
D) All of the above

Question 13

The current account of the U.S. balance of payments does $\underline { \text { not } }$ include:

A) Investment income
B) Merchandise exports and imports
C) The sale of securities to foreigners
D) Unilateral transfers

Question 14

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 15

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 account
C) Either the official settlements account or the capital account
D) Both the official settlements account and the capital account

Question 16

Table 10.1 gives hypothetical figures for U.S. International Transactions.
Table 10.1. U.S. International Transactions

Referring to Table 10.1, the current account balance equals:

A) $5 billion
B) $10 billion
C) $15 billion
D) $20 billion

Question 17

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 18

The U.S. has a balance of $\underline { \text { trade deficit } }$ 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 19

Which of the following indicates the international investment position of a country at a given moment in time?

A) The balance of payments
B) The capital account of the balance of payments
C) The current account of the balance of payments
D) The balance of international indebtedness

Question 20

Concerning the U.S. balance of payments, which account is defined in essentially the same way as the net export of goods and services, which comprises part of the country's gross domestic product?

A) Merchandise trade account
B) Goods and services account
C) Current account
D) Capital account

Question 21

The burden of a current account deficit would be the $\underline { \text { least } }$ if a nation uses what it borrows to finance:

A) Unemployment compensation benefits
B) Social Security benefits
C) Expenditures on food and recreation
D) Investment on plant and equipment

Question 22

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 23

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 24

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 25

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 imports over exports on goods and services
D) It becomes a net supplier of funds to other countries

Question 26

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 27

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 28

Table 10.3 shows hypothetical transactions, in billions of U.S. dollars, that took place during a year.
Table 10.3. International Transactions of the United States

Refer to Table 10.3. The merchandise-trade balance registered a deficit of $50 billion.

Question 29

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 30

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 31

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 32

All of the following are debit items in the balance of payments, except:

A) Capital outflows
B) Merchandise exports
C) Private gifts to foreigners
D) Foreign aid granted to other nations

Question 33

Table 10.2. International Investment Position of the United States

Consider Table 10.2. The U.S. balance of international indebtedness suggests that the United States is a net:

A) Debtor
B) Creditor
C) Spender
D) Exporter

Question 34

Table 10.3 shows hypothetical transactions, in billions of U.S. dollars, that took place during a year.
Table 10.3. International Transactions of the United States

Refer to Table 10.3. The services balance registered a surplus of $100 billion.

Question 35

In the balance of payments, the statistical discrepancy is used to:

A) Ensure that the sum of all debits matches the sum of all credits
B) Ensure that trade imports equal the value of trade exports
C) Obtain an accurate account of a balance-of-payments deficit
D) Obtain an accurate account of a balance-of-payments surplus

Question 36

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 37

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 increase private investment relative to saving
D) Decrease the government's deficit and decrease private investment relative to saving

Question 38

Concerning a country's business cycle, ____ is commonly associated with large or growing current account deficits:

A) Rapid growth rates of production and employment
B) Slow growth rates of production and employment
C) Falling interest rates on government securities
D) Falling interest rates on corporate securities

Question 39

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 40

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 41

Referring to the balance-of-payments statement, an international transaction refers to the exchange of goods, services, and assets between residents of one country and those abroad.

Question 42

The merchandise-trade account on the balance-of-payments statement is defined the same way as "net exports" which constitutes part of the nation's gross domestic product.

Question 43

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

Question 44

Services transactions on Canada's balance-of-payments statement would include Canadian ships transporting lumber to Japan, foreign tourists spending money in Canada, and Canadian engineers designing bridges in China.

Question 45

Because the balance of payments utilizes double-entry accounting, merchandise exports will always be in balance with merchandise imports.

Question 46

Unilateral transfers refer to two-sided transactions, reflecting the movement of goods and services in one direction with corresponding payments in the other direction.

Question 47

Table 10.3 shows hypothetical transactions, in billions of U.S. dollars, that took place during a year.
Table 10.3. International Transactions of the United States

Refer to Table 10.3. The payments data suggest that the United States was a "net demander" of $30 billion from the rest of the world.

Question 48

Table 10.3 shows hypothetical transactions, in billions of U.S. dollars, that took place during a year.
Table 10.3. International Transactions of the United States

Refer to Table 10.3. The goods-and-services balance registered a surplus of $50 billion.

Question 49

An increase in import restrictions by the U.S. government tends to promote a merchandise-trade surplus.

Question 50

Table 10.3 shows hypothetical transactions, in billions of U.S. dollars, that took place during a year.
Table 10.3. International Transactions of the United States

Refer to Table 10.3. The unilateral-transfers balance registered a deficit of $40 billion.

Question 51

Table 10.3 shows hypothetical transactions, in billions of U.S. dollars, that took place during a year.
Table 10.3. International Transactions of the United States

Refer to Table 10.3. The current-account balance registered a surplus of $30 billion.

Question 52

A surplus on Germany's goods-and-services balance indicates that Germany has sold more goods and services to foreigners than it has bought from them over a one-year period.

Question 53

On the balance-of-payments statement, dividend and interest income are classified as capital-account transactions.

Question 54

A positive balance on the goods-and-services account of the balance of payments indicates an excess of exports over imports which must be added to the nation's gross domestic product.

Question 55

Table 10.3 shows hypothetical transactions, in billions of U.S. dollars, that took place during a year.
Table 10.3. International Transactions of the United States

Refer to Table 10.3. The "net exports" component of the U.S. gross domestic product registered $-110 billion.

Question 56

The "goods and services" account of the balance of payments shows the monetary value of international flows associated with transactions in goods, services, and unilateral transfers.

Question 57

For the United States, merchandise trade has generally constituted the largest portion of its goods-and-services account.

Question 58

On the U.S. balance of payments, the following transactions are debits, leading to payments to foreigners: merchandise imports, travel expenditures, gifts to foreign residents, and overseas investments by U.S. residents.

Question 59

The balance of payments includes international transactions of households and businesses, but not government.

Question 60

On the U.S. balance-of-payments statement, the following transactions are credits, leading to the receipt of dollars from foreigners: merchandise exports, transportation receipts, income received from investments abroad, and investments in the United States by foreign residents.

Question 61

Since the 1970s, the merchandise trade account of the U.S. balance of payments has registered deficit.

Question 62

The U.S. unilateral-transfers balance has consistently registered surplus in the past two decades.

Question 63

Although the United States has realized merchandise trade deficits since the early 1970s, its goods-and-services balance has always registered surplus.

Question 64

On the balance-of-payments statement, a capital inflow can be likened to the import of goods and services.

Question 65

If a country realizes a current-account deficit in its balance of payments, it becomes a net supplier of funds to the rest of the world.

Question 66

Concerning the balance of payments, a current-account surplus means an excess of exports over imports of goods, services, investment income, and unilateral transfers.

Question 67

On the U.S. balance-of-payments statement, a capital inflow would occur if a Swiss resident purchases the securities of the U.S. government.

Question 68

If Bank of America receives repayment for a loan it made to a Mexican firm, the U.S. capital account would register an inflow.

Question 69

Because a large number of international transactions fail to get recorded, statisticians insert a residual, known as statistical discrepancy, to ensure that total debits equal total credits.

Question 70

The capital account of the balance of payments includes private-sector transactions as well as official-settlements transactions of the home country's central bank.

Question 71

Concerning the balance of payments, the goods-and-services balance is commonly referred to as the "trade balance" by the news media.

Question 72

Concerning the balance of payments, a current-account deficit results in a worsening of a country's net foreign investment position.

Question 73

In the balance-of-payments statement, statistical discrepancy is treated as part of the merchandise trade account because merchandise transactions are generally the most frequent source of error.

Question 74

In the past two decades, the U.S. services balance has generally registered surplus.

Question 75

If the current account of the balance of payments registers a deficit, the capital account registers a surplus, and vice versa.

Question 76

If Toyota Inc. of Japan builds an automobile assembly plant in the United States, the Japanese capital account would register an outflow.

Question 77

The United States would be a "net creditor" if the value of U.S. assets abroad exceeded the value of foreign assets in the United States.

Question 78

Because the balance of payments is a record of the economic transactions of a country over a period of time, it is a "flow" concept.

Question 79

Current-account transactions include direct foreign investment, purchases of foreign government securities, and commercial bank loans made abroad.

Question 80

Unilateral transfers consist of private-sector transfers, such as church contributions to alleviate starvation in Africa, as well as governmental transfers, such as foreign aid.