Exam 10: The Balance of Payments

If a country consistently realizes a current-account surplus in its balance of payments, it likely will become a "net debtor" in its balance of international indebtedness.

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

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

To reduce a current account deficit, a country should either decrease the budget deficit of its government or reduce investment spending relative to saving.

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

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

The official reserve assets of the United States consist of holdings of gold and foreign corporate securities.

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 Transaction Allocation of SDRs Changes in U.S. assets abroad Statistical discrepancy Merchandise imports Payments on foreign assets in U.S. Remittances, pensions, transfers Travel and transportation receipts, net Military transactions, net Investment income, net Merchandise exports U.S. government grants (excluding military) Changes in foreign assets in the U.S. Other services, net Receipts on U.S. investments abroad Compensation of employees Amount (billions of dollars) 10 100 -15 -400 -20 -60 30 -10 100 350 -20 190 80 30 -10 -Refer to Table 10.3. The merchandise-trade balance registered a deficit of $50 billion.

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.

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

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

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.

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.

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

The net-debtor status, that the United States achieved in its balance of international indebtedness by the mid-1980s, reflected the continuous current-account surplus that the United States attained in its balance of payments during the 1970s.

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

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

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

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.