test bank 9

CHAPTER 10

THE BALANCE OF PAYMENTS

MULTIPLE-CHOICE QUESTIONS

1. 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 2. 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

3. 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 4. 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 5. Which of the following would call for 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

6. 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 7. 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

Table 10.1 gives hypothetical figures for U.S. International Transactions. On the basis of this information, answer Questions 8 and 9.

Table 10.1. U.S. International Transactions

Amount Transaction (billions of dollars) Merchandise imports ......................................... 110 Military transactions, net ................................... –5 Remittances, pensions, transfers........................ –20 U.S. private assets abroad .................................. –50 Merchandise exports .......................................... 115 Investment income, net ...................................... 15 U.S. government grants (excluding military) .... –5 Foreign private assets in the U.S. ...................... 25 Compensation of employees ............................. –5 Allocation of SDRs ........................................... 5 Travel and transportation receipts, net .............. 20

8. Refer to Table 10.1. The goods and services balance equals:

a. $5 billion b. $15 billion c. $20 billion d. $25 billion 9. Refer to Table 10.1. The current account balance equals:

a. –$5 billion b. –$10 billion c. –$15 billion d. –$20 billion

10. 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 11. 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

12. 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 13. 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 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 15. 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

16. 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

17. 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 18. 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

19. 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

20. 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 21. 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

Table 10.2. International Investment Position of the United States

U.S. assets abroad U.S. government assets ......................... $800 billion U.S. private assets ................................. $200 billion Foreign assets in the U.S. Foreign official assets ........................... $600 billion Foreign private assets ........................... $300 billion

22. 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 23. 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 24. 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

25. 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 26. 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 27. 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 28. 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 29. 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

30. 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 31. 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 32. 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

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