182
182 Test Bank for International Economics, 9eTest Bank for International Economics, 9e
CHAPTER 11
CHAPTER 11
THE BALANCE OF PAYMENTS
THE BALANCE OF PAYMENTS
MULT
MULTIPLE-CHOICE
IPLE-CHOICE QUESTIONS
QUESTIONS
1.
1. On the balaOn the balance-once-of-payf-payments staments statementtements, merchs, merchandisandise imports ae imports are clasre classifiesified in the:d in the: aa.. CCuurrrreennt t aaccccoouunntt
b.
b. Capital accountCapital account
cc.. UnUnililaateterral tal trrananssfefer acr acccouountnt d.
d. OfOffificicial al sesettttlelemementnts s acaccocoununtt 2.
2. The balaThe balance of intence of internatiornational indenal indebtednebtedness is a recss is a record of a couord of a countryntry’s in’s internaternational:tional: a.
a. nn!e!eststmement nt poposisitiotion n o!o!er er a a pepeririod od of of titimeme b.
b. n!estment position at a fi"ed point in timen!estment position at a fi"ed point in time c.
c. TTrradade pe pososititioion on o!e!er a r a pepeririod od of of titimeme d.
d. TTrradade pe pososititioion an at a ft a fi"i"ed ed popoinint in t in titimeme #.
#. $hi$hich bch balaalancence-of-of-pa-paymeyments ints item dtem doesoesnot not directly enter into the calculation of the U.%. &ross domestic directly enter into the calculation of the U.%. &ross domestic product'
product'
aa.. ((eerrcchhaannddisise e iimmppoorrtsts b.
b. %hippin& and transportation receipts%hippin& and transportation receipts cc.. )i)irrecect ft fororeei&i&n n inin!e!eststmementnt
d
d.. %%eerr!!iicce e ee""ppoorrttss *.
*. $hi$hich of thch of the fole follo+ilo+in& is cn& is consonsideiderered a capid a capitaltalinflowinflow'' a.
a. sasale ole of U.f U.%. f%. fininanancicial aal assssetets to s to a foa forerei&i&n bun buyeyer r b.
b. loan from a U.%. ban to a forei&n borro+er loan from a U.%. ban to a forei&n borro+er c.
c. p pururchchasase of fe of fororeiei&n f&n finainancnciaial assl assetets by a Us by a U.%.%. buy. buyer er d.
d. U.%. U.%. citcitieien’n’s rs repaepaymeyment ont of a lf a loan oan frfrom a om a forforei&ei&n ban ban n /.
/. $hi$hich och of thf the fe folloollo+in+in& +o& +ould uld calcall fol forrinpaymentsinpayments to the United %tates' to the United %tates' a.
a. mmerericican an imimpoportrts s of of 0e0ermrman an ststeeeell b.
b. 0old flo+in& out of the United %tates0old flo+in& out of the United %tates c.
c. memericrican an uniunilatelateral ral tratransfnsfers ers to to lesless-ds-de!ee!eloploped ed coucountrntriesies d.
. n a country’s balance of payments, +hich of the follo+in& transactions aredebits' a. )omestic ban balances o+ned by forei&ners are decreased
b. 3orei&n ban balances o+ned by domestic residents are decreased c. ssets o+ned by domestic residents are sold to nonresidents d. %ecurities are sold by domestic residents to nonresidents
4. $hich of the follo+in& is classified as acredit in the U.%. balance of payments' a. U.%. e"ports
b. U.%. &ifts to other countries c. flo+ of &old out of the U.%.
d. 3orei&n loans made by U.%. companies
Table 11.1 &i!es hypothetical fi&ures for U.%. nternational Transactions. On the basis of this information, ans+er 5uestions 8 and 6.
Table 11.1. U.S. International Transactions
mount Transaction 7billions of dollars
(erchandise imports 119
(ilitary transactions, net / ;emittances, pensions, transfers 29 U.%. pri!ate assets abroad /9 (erchandise e"ports 11/ n!estment income, net 1/ U.%. &o!ernment &rants 7e"cludin& military / 3orei&n pri!ate assets in the U.%. 2/ Compensation of employees /
llocation of %);s /
Tra!el and transportation receipts, net 29
8. ased on the information pro!ided in Table 11.1, the goods and services balance e<uals: a. =/ billion
b. =1/ billion c. =29 billion d. =2/ billion
6. ased on the information pro!ided in Table 11.1, thecurrent account balance e<uals: a. =/ billion
b. =19 billion c. =1/ billion d. =29 billion
!apter ""# T!e Balance of $ayments 18*
19. Unlike the balance of payments, the balance of international indebtedness indicates the international: a. n!estment position of a country at a &i!en moment in time
b. n!estment position of a country o!er a one-year period c. Trade position of a country at a &i!en moment in time d. Trade position of a country o!er a one-year period
11. $hich of the follo+in& indicates the international in!estment position of a country at a &i!en 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. Concernin& the U.%. balance of payments, +hich account is defined in essentially the same +ay as the net e"port of &oods and ser!ices, +hich comprises part of the country’s &ross domestic product'
a. (erchandise trade account b. 0oods and ser!ices account
c. Current account d. Capital account
1#. f an merican recei!es di!idends from the shares of stoc she or he o+ns in Toyota, nc., a >apanese firm, the transaction +ould be recorded on the U.%. balance of payments as a:
a. Capital account debit b. Capital account credit
c. Current account debit d. Current account credit
1*. f the United %tates &o!ernment sells military hard+are to %audi rabia, the transaction +ould be recorded on the U.%. balance of payments as a:
a. Current account debit b. Current account credit
c. Capital account debit d. Capital account credit
1/. The U.%. balance of trade is determined by: a. ?"chan&e rates
b. 0ro+th of economies o!erseas c. ;elati!e prices in +orld marets d. ll of the abo!e
1. U.%. military aid &ranted to forei&n countries is entered in the: a. (erchandise trade account
b. Capital account c. Current account
14. f the U.%. 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. ?ither the official settlements account or the capital account d. oth the official settlements account and the capital account 18. The current account of the U.%. balance of payments doesnot include:
a. n!estment income
b. (erchandise e"ports and imports c. The sale of securities to forei&ners d. Unilateral transfers
16. The U.%. has a balance oftrade deficit +hen its:
a. (erchandise e"ports e"ceed its merchandise imports b. (erchandise imports e"ceed its merchandise e"ports
c. 0oods and ser!ices e"ports e"ceed its &oods and ser!ices imports d. 0oods and ser!ices imports e"ceed its &oods and ser!ices e"ports
29. The !alue to merican residents of income earned from o!erseas in!estments sho+s up in +hich account in the U.%. balance of payments'
a. Current account b. Trade account
c. Unilateral transfers account d. Capital account
Usin& the data of Table 11.2, ans+er 5uestion 21.
Table 11.2. International Investment $osition of t!e United States U.%. assets abroad
U.%. &o!ernment assets =899 billion U.%. pri!ate assets =299 billion 3orei&n assets in the U.%.
3orei&n official assets =99 billion 3orei&n pri!ate assets =#99 billion
21. Consider Table 11.2. The U.%. balance of international indebtedness su&&ests that the United %tates is a net: a. )ebtor
b. Creditor c. %pender d. ?"porter
!apter ""# T!e Balance of $ayments 18
22. 3or the first time since $orld $ar , in 168/ the United %tates became a net international: a. ?"porter
b. mporter c. )ebtor d. Creditor
2#. country that is a net international debtor initially e"periences:
a. n au&mented sa!in&s pool a!ailable to finance domestic spendin& b. hi&her interest rate, +hich leads to lo+er domestic in!estment
c. loss of funds to tradin& partners o!erseas
d. decrease in its ser!ices e"ports to other countries
2*. Credit 7@ items in the balance of payments correspond to anythin& that: a. n!ol!es receipts from forei&ners
b. n!ol!es payments to forei&ners c. )ecreases the domestic money supply d. ncreases the demand for forei&n e"chan&e
2/. )ebt 7 items in the balance of payments correspond to anythin& that: a. n!ol!es receipts from forei&ners
b. n!ol!es payments to forei&ners c. ncreases the domestic money supply d. )ecreases the demand for forei&n e"chan&e
2. $henall of the debit or credit items in the balance of payments are combined: a. (erchandise imports e<ual merchandise e"ports
b. Capital imports e<ual capital e"ports c. %er!ices e"ports e<ual ser!ices imports d. The total surplus or deficit e<uals ero
24. n the balance of payments, the statistical discrepancy is used to: a. ?nsure that the sum of all debits matches the sum of all credits b. ?nsure that trade imports e<ual the !alue of trade e"ports
c. Obtain an accurate account of a balance-of-payments deficit d. Obtain an accurate account of a balance-of-payments surplus 28. ll of the follo+in& are credit items in the balance of payments,e%cept :
a. n!estment inflo+s b. (erchandise e"ports
c. Aayments for merican ser!ices to forei&ners d. Ari!ate &ifts to forei&n residents
26. ll of the follo+in& are debit items in the balance of payments,e%cept : a. Capital outflo+s
b. (erchandise e"ports c. Ari!ate &ifts to forei&ners
#9. The role of BBBBBBBBBB is to direct one nation’s sa!in&s into another nation’s in!estments. a. (erchandise trade flo+s
b. %er!ices flo+s
c. Current account flo+s d. Capital flo+s
#1. $hen a country realies a deficit on its current account: a. ts net forei&n in!estment position becomes positi!e b. t becomes a net demander of funds from other countries
c. t realies an e"cess of imports o!er e"ports on &oods and ser!ices d. t becomes a net supplier of funds to other countries
#2. ;educin& a current account deficit re<uires a country to: a. ncrease pri!ate sa!in& relati!e to in!estment b. ncrease pri!ate consumption relati!e to sa!in&
c. ncrease pri!ate in!estment relati!e to consumption d. ncrease pri!ate in!estment relati!e to sa!in& ##. ;educin& a current account deficit re<uires a country to:
a. ncrease the &o!ernment’s deficit and increase pri!ate in!estment relati!e to sa!in& b. ncrease the &o!ernment’s deficit and decrease pri!ate in!estment relati!e to sa!in&
c. )ecrease the &o!ernment’s deficit increase pri!ate in!estment relati!e to sa!in& d. )ecrease the &o!ernment’s deficit and decrease pri!ate in!estment relati!e to sa!in& #*. ;educin& a current account surplus re<uires a country to:
a. ncrease the &o!ernment’s deficit and increase pri!ate in!estment relati!e to sa!in& b. ncrease the &o!ernment’s deficit and decrease pri!ate in!estment relati!e to sa!in& c. )ecrease the &o!ernment’s deficit and increase pri!ate in!estment relati!e to sa!in& d. )ecrease the &o!ernment’s deficit and decrease pri!ate in!estment relati!e to sa!in&
#/. Concernin& a country’s business cycle, rapid &ro+th of production and employment is commonly associated +ith:
a. ar&e or &ro+in& trade deficits and current account deficits b. ar&e or &ro+in& trade deficits and current account surpluses
c. %mall or shrinin& trade deficits and current account deficits d. %mall or shrinin& trade deficits and current account surpluses
#. The burden of a current account deficit +ould be theleast if a nation uses +hat it borro+s to finance: a. Unemployment compensation benefits
b. %ocial %ecurity benefits
c. ?"penditures on food and recreation d. n!estment on plant and e<uipment
!apter ""# T!e Balance of $ayments 188
#4. Concernin& a country’s business cycle, BBBBBBBBBB is commonly associated +ith lar&e or &ro+in& current account deficits:
a. ;apid &ro+th rates of production and employment b. %lo+ &ro+th rates of production and employment
c. 3allin& interest rates on &o!ernment securities d. 3allin& interest rates on corporate securities
#8. ccordin& to researchers at the 3ederal ;eser!e, the loss of Dobs associated +ith a deficit in the current account tends to be:
a. Offset by the increase of Dobs associated +ith a surplus in the capital account b. ;einforced by the decrease of Dobs associated +ith a surplus in the capital account
c. threat to the le!el of employment for the economy as a +hole d. Of no lon&-run economic conse<uence for +orers +ho lose their Dobs
TRUE-FALSE QUESTIONS
Table 11.# sho+s hypothetical transactions, in bill ions of U.%. dollars, that too place durin& a year. ns+er the ne"t seven <uestions on the basis of this information.
Table 11.3. International Transactions of t!e United States mount Transaction 7billions of dollars
llocation of %);s 19
Chan&es in U.%. assets abroad 199 %tatistical discrepancy 1/ (erchandise imports *99 Aayments on forei&n assets in U.%. 29 ;emittances, pensions, transfers 9 Tra!el and transportation receipts, net #9 (ilitary transactions, net 19 n!estment income, net 199 (erchandise e"ports #/9 U.%. &o!ernment &rants 7e"cludin& military 29 Chan&es in forei&n assets in the U.%. 169 Other ser!ices, net 89 ;eceipts on U.%. in!estments abroad #9 Compensation of employees 19
T 3 1. Consider Table 11.#. The merchandise-trade balance re&istered a deficit of =/9 billion. T 3 2. Consider Table 11.#. The ser!ices balance re&istered a surplus of =199 billion.
T 3 #. Consider Table 11.#. The &oods-and-ser!ices balance re&istered a surplus of =/9 billion. T 3 *. Consider Table 11.#. The unilateral-transfers balance re&istered a deficit of =*9 billion. T 3 /. Consider Table 11.#. The current-account balance re&istered a surplus of =#9 billion. T 3 . Consider Table 11.#. The Enet e"portsF component of the U.%. &ross domestic product
re&istered =119 billion.
T 3 4. Consider Table 11.#. The payments data su&&est that the United %tates +as a Enet demanderF of =#9 billion from the rest of the +orld.
T 3 8. The balance of payments refers to the stoc of trade and in!estment transactions that e"ists at a particular point in time.
T 3 6. ;eferrin& to the balance-of-payments statement, an international transaction refers to the e"chan&e of &oods, ser!ices, and assets bet+een residents of one country and those abroad. T 3 19. The balance of payments includes international transactions of households and businesses, but
not &o!ernment.
T 3 11. ecause the balance of payments utilies double-entry accountin&, merchandise e"ports +ill al+ays be in balance +ith merchandise imports.
T 3 12. On the U.%. balance-of-payments statement, the follo+in& transactions are credits, leadin& to the receipt of dollars from forei&ners: merchandise e"ports, transportation receipts, income recei!ed from in!estments abroad, and in!estments in the United %tates by forei&n residents. T 3 1#. On the U.%. balance of payments, the follo+in& transactions are debits, leadin& to payments to
forei&ners: merchandise imports, tra!el e"penditures, &ifts to forei&n residents, and o!erseas in!estments by U.%. residents.
T 3 1*. The E&oods and ser!icesF account of the balance of payments sho+s the monetary !alue of international flo+s associated +ith transactions in &oods, ser!ices, and unilateral transfers. T 3 1/. n increase in import restrictions by the U.%. &o!ernment tends to promote a
merchandise-trade surplus.
T 3 1. %er!ices transactions on Canada’s balance-of-payments statement +ould include Canadian ships transportin& lumber to >apan, forei&n tourists spendin& money in Canada, and Canadian en&ineers desi&nin& brid&es in China.
T 3 14. On the balance-of-payments statement, di!idend and interest income are classified as capital-account transactions.
T 3 18. surplus on 0ermany’s &oods-and-ser!ices balance indicates that 0ermany has sold more &oods and ser!ices to forei&ners than it has bou&ht from them o!er a one-year period.
!apter ""# T!e Balance of $ayments 169
T 3 16. The merchandise-trade account on the balance-of-payments statement is defined the same +ay as Enet e"portsF +hich constitutes part of the nation’s &ross domestic product.
T 3 29. positi!e balance on the &oods-and-ser!ices account of the balance of payments indicates an e"cess of e"ports o!er imports +hich must be added to the nation’s &ross domestic product. T 3 21. 3or the United %tates, merchandise trade has &enerally constituted the lar&est portion of its
&oods-and-ser!ices account.
T 3 22. Unilateral transfers refer to t+o-sided transactions, reflectin& the mo!ement of &oods and ser!ices in one direction +ith correspondin& payments i n the other direction.
T 3 2#. Unilateral transfers consist of pri!ate-sector transfers, such as church contributions to alle!iate star!ation in frica, as +ell as &o!ernmental transfers, such as forei&n aid.
T 3 2*. Current-account transactions include direct forei&n in!estment, purchases of forei&n &o!ernment securities, and commercial ban loans made abroad.
T 3 2/. On the U.%. balance-of-payments statement, a capital inflo+ +ould occur if a %+iss resident purchases the securities of the U.%. &o!ernment.
T 3 2. f Toyota nc. of >apan builds an automobile assembly plant in the United %tates, the >apanese capital account +ould re&ister an outflo+.
T 3 24. f an of merica recei!es repayment for a loan it made to a (e"ican firm, the U.%. capital account +ould re&ister an inflo+.
T 3 28. On the balance-of-payments statement, a capital inflo+ can be liened to the import of &oods and ser!ices.
T 3 26. The capital account of the balance of payments includes pri!ate-sector transactions as +ell as official-settlements transactions of the home country’s central ban.
T 3 #9. f the current account of the balance of payments re&isters a deficit, the capital account re&isters a surplus, and !ice !ersa.
T 3 #1. Concernin& the balance of payments, a current-account surplus means an e"cess of e"ports o!er imports of &oods, ser!ices, in!estment income, and unilateral transfers.
T 3 #2. f a country realies a current-account deficit in its balance of payments, it becomes a net supplier of funds to the rest of the +orld.
T 3 ##. Concernin& the balance of payments, a current-account deficit results in a +orsenin& of a country’s net forei&n in!estment position.
T 3 #*. n the balance-of-payments statement, statistical discrepancy is treated as part of the
merchandise trade account because merchandise transactions are &enerally the most fre<uent source of error.
T 3 #/. ecause a lar&e number of international transactions fail to &et recorded, statisticians insert a residual, no+n as statistical discrepancy, to ensure that total debits e<ual total credits.
T 3 #. Concernin& the balance of payments, the &oods-and-ser!ices balance is commonly referred to as the Etrade balanceF by the ne+s media.
T 3 #4. %ince the 1649s, the merchandise trade account of the U.%. balance of payments has re&istered deficit.
T 3 #8. lthou&h the United %tates has realied merchandise trade deficits since the early 1649s, its &oods-and-ser!ices balance has al+ays re&istered surplus.
T 3 #6. n the past t+o decades, the U.%. ser!ices balance has &enerally re&istered surplus. T 3 *9. The U.%. unilateral-transfers balance has consistently re&istered surplus in the past t+o
decades.
T 3 *1. ecause the balance of payments is a record of the economic transactions of a country o!er a period of time, it is a Eflo+F concept.
T 3 *2. The United %tates +ould be a Enet creditorF if the !alue of U.%. assets abroad e"ceeded the !alue of forei&n assets in the United %tates.
T 3 *#. f a country consistently realies a current-account surplus in its balance of payments, it liely +ill become a Enet debtorF in its balance of international indebtedness.
T 3 **. y the mid-1689s, the United %tates had e!ol!ed from the status of a net-creditor nation to a net-debtor nation in its balance of international indebtedness.
T 3 */. The net-debtor status, that the United %tates achie!ed in its balance of international indebtedness by the mid-1689s, reflected the conti nuous current-account surplus that the United %tates attained in its balance of payments durin& the 1649s.
T 3 *. lthou&h a net-debtor country may initially benefit from an inflo+ of sa!in&s from abroad, o!er the lon& run continued borro+in& results in &ro+in& di!idend payments to forei&ners and a drain on the debtor country’s economic resources.
T 3 *4. The official reser!e assets of the United %tates consist of holdin&s of &old and forei&n corporate securities.
T 3 *8. That U.%. importers purchase bananas from rail constitutes a debit transaction on the U.%. balance of payments.
T 3 *6. That 0erman in!estors collect interest income on their holdin&s of U.%. Treasury bills constitutes a credit transaction on the U.%. balance of payments.
T 3 /9. That U.%. charities donate funds to combat star!ation in frica constitutes a debit transaction on the U.%. balance of payments.
!apter ""# T!e Balance of $ayments 162
T 3 /1. To reduce a current account deficit, a country should either decrease the bud&et deficit of its &o!ernment or reduce in!estment spendin& relati!e to sa!in&.
T 3 /2. (ost economists belief that in the 1689s, a massi!e outflo+ of capital caused a current account deficit for the United %tates.
T 3 /#. current account deficit for the United %tates necessarily reduces the standard of li!in& for merican households.
T 3 /*. ;apid &ro+th of production and employment is commonly associated +ith lar&e or &ro+in& trade surpluses and current account surpluses.
T 3 //. Often, countries realiin& rapid economic &ro+th rates possess lon&-run current account deficits.
T 3 /. 3or the United %tates, a conse<uence of its current account deficit is a &ro+in& forei&n o+nership of the capital stoc of the United %tates and a risin& fraction of U.%. income that must be di!erted abroad in the form of interest and di!idends to forei&ners.
T 3 /4. (ost economists contend that any reduction in the current account deficit is better achie!ed throu&h increased national sa!in& than throu&h reduced domestic in!estment.
ANSWERS
Anse!s "# M$l"%&le-C'#%(e Q$es"%#ns 1. a 2. b #. ( *. a /. ) . a 4. a 8. ( 6. ( 19. a 11. ) 12. b 1#. ) 1*. b 1/. ) 1. ( 14. ( 18. ( 16. b 29. a 21. b 22. ( 2#. a 2*. a 2/. b 2. ) 24. a 28. ) 26. b #9. ) #1. b #2. a ##. ) #*. a #/. a #. ) #4. a #8. a
Anse!s "# T!$e-False Q$es"%#ns 1. T 2. T #. T *. F /. F . F 4. F 8. F 6. T 19. F 11. F 12. T 1#. T 1*. F 1/. T 1. T 14. F 18. T 16. F 29. T 21. T 22. F 2#. T 2*. F 2/. T 2. T 24. T 28. F 26. T #9. T #1. T #2. F ##. T #*. F #/. T #. T #4. T #8. F #6. T *9. F *1. T *2. T *#. F **. T */. F *. T *4. F *8. T *6. F /9. T /1. T /2. F /#. F /*. F //. T /. T /4. T
