Question 1

Regarding the statistical discrepancy in the balance-of-payments accounts

Accepted Answer

A) there is some evidence that financial transactions may be mainly responsible for the discrepancy. 
B) the sum of the balance on the capital account and the statistical discrepancy is very close to the balance of the current account in magnitude. 
C) it tends to be positive one year and negative in others, so it's safe to ignore it. 
D) a) and b) 
A) there is some evidence that financial transactions may be mainly responsible for the discrepancy. 
B) the sum of the balance on the capital account and the statistical discrepancy is very close to the balance of the current account in magnitude. 
C) it tends to be positive one year and negative in others, so it's safe to ignore it. 
D) a) and b)

Question 2

A depreciation will begin to improve the trade balance immediately if

Accepted Answer

A) imports and exports are responsive to the exchange rate changes. 
B) imports and exports are inelastic to the exchange rate changes. 
C) consumers exhibit brand loyalty and price inelasticity. 
D) b) and c) 
A) imports and exports are responsive to the exchange rate changes. 
B) imports and exports are inelastic to the exchange rate changes. 
C) consumers exhibit brand loyalty and price inelasticity. 
D) b) and c)

Question 3

When Nestlé,a Swiss firm,bought the American firm Carnation,it was engaged in foreign direct investment.If Nestlé had only bought a non-controlling number of shares of the firm,

Accepted Answer

A) Nestlé would have been engaged in portfolio investment. 
B) Nestlé would have been engaged in a cross-border acquisition. 
C) it would depend if they bought the shares from an American or a Canadian. 
D) none of the above 
A) Nestlé would have been engaged in portfolio investment. 
B) Nestlé would have been engaged in a cross-border acquisition. 
C) it would depend if they bought the shares from an American or a Canadian. 
D) none of the above

Question 4

If a country must make a net payment to foreigners because of a balance-of-payments deficit,the country should

Accepted Answer

A) either increase its official reserve assets or borrow anew from foreigners. 
B) either run down its official reserve assets or borrow anew from foreigners. 
C) either run down its official reserve assets or lend more foreigners. 
D) none of the above 
A) either increase its official reserve assets or borrow anew from foreigners. 
B) either run down its official reserve assets or borrow anew from foreigners. 
C) either run down its official reserve assets or lend more foreigners. 
D) none of the above

Question 5

BKA stands for

Accepted Answer

A) the balance on the current account. 
B) the balance on the capital account. 
C) the balance on the official reserves. 
D) net imports. 
A) the balance on the current account. 
B) the balance on the capital account. 
C) the balance on the official reserves. 
D) net imports.

Question 6

The "J-curve effect" shows

Accepted Answer

A) the initial deterioration and the eventual improvement of a country's trade balance following a currency depreciation. 
B) the initial improvement and the eventual depreciation of a country's trade balance following a currency depreciation. 
C) the trade balance's lack of responsiveness to the exchanges rate changes. 
D) none of the above 
A) the initial deterioration and the eventual improvement of a country's trade balance following a currency depreciation. 
B) the initial improvement and the eventual depreciation of a country's trade balance following a currency depreciation. 
C) the trade balance's lack of responsiveness to the exchanges rate changes. 
D) none of the above

Question 7

Invisible trade refers to

Accepted Answer

A) services that avoid tax payments. 
B) the underground economy. 
C) legal, consulting, and engineering services. 
D) tourist expenditures, only. 
A) services that avoid tax payments. 
B) the underground economy. 
C) legal, consulting, and engineering services. 
D) tourist expenditures, only.

Question 8

The balance on the reserves account (BRA),under the pure flexible exchange regime is

Accepted Answer

A) -$44 billion. 
B) $44 billion. 
C) $216 billion. 
D) none of the above 
A) -$44 billion. 
B) $44 billion. 
C) $216 billion. 
D) none of the above

Question 9

The current account balance is given by

Accepted Answer

A) C + I + G + X + M 
B) X - M 
C) I + X + M 
D) M - X 
A) C + I + G + X + M 
B) X - M 
C) I + X + M 
D) M - X

Question 10

There is an intimate relationship between a country's BCA and how the country finances its domestic investment and pays for government expenditures.Given this,in order for a country to reduce a BCA deficit,which of the following must occur?

Accepted Answer

A) For a given level of S and I, the government budget deficit (T - G) must be reduced. 
B) For a given level of I and (T - G), S must be increased. 
C) For a given level of S and (T - G), I must fall. 
D) All of the above would work to reduce a BCA deficit. 
A) For a given level of S and I, the government budget deficit (T - G) must be reduced. 
B) For a given level of I and (T - G), S must be increased. 
C) For a given level of S and (T - G), I must fall. 
D) All of the above would work to reduce a BCA deficit.

Question 11

Under the fixed exchange rate regime

Accepted Answer

A) the combined balance on the current and capital accounts will be equal in size, but opposite in sign, to the change in the official reserves. 
B) the balance on the current and capital accounts will be equal in size, but opposite in sign. 
C) a current account surplus or deficit must be matched by an official reserves deficit or surplus. 
D) a capital account surplus or deficit must be matched by an official reserves deficit or surplus. 
A) the combined balance on the current and capital accounts will be equal in size, but opposite in sign, to the change in the official reserves. 
B) the balance on the current and capital accounts will be equal in size, but opposite in sign. 
C) a current account surplus or deficit must be matched by an official reserves deficit or surplus. 
D) a capital account surplus or deficit must be matched by an official reserves deficit or surplus.

Question 12

Transactions in currency,bank deposits and so forth

Accepted Answer

A) tend to be insensitive to both changes in relative interest rates and the anticipated change in exchange rate. 
B) tend to be sensitive to both changes in relative interest rates and the anticipated change in exchange rate. 
C) tend to be sensitive to changes in relative interest rates but insensitive to the anticipated change in exchange rate. 
D) tend to be insensitive to changes in relative interest rates but sensitive to the anticipated change in exchange rate. 
A) tend to be insensitive to both changes in relative interest rates and the anticipated change in exchange rate. 
B) tend to be sensitive to both changes in relative interest rates and the anticipated change in exchange rate. 
C) tend to be sensitive to changes in relative interest rates but insensitive to the anticipated change in exchange rate. 
D) tend to be insensitive to changes in relative interest rates but sensitive to the anticipated change in exchange rate.

Question 13

If Japan exports more than it imports,then

Accepted Answer

A) the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus. 
B) one can infer that the yen would be likely to appreciate against other currencies. 
C) a) and b) 
D) None of the above 
A) the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus. 
B) one can infer that the yen would be likely to appreciate against other currencies. 
C) a) and b) 
D) None of the above

Question 14

The difference between a country's savings and investment is given by

Accepted Answer

A) S - I 
B) I * S 
C) X - M 
D) GNP - Y 
A) S - I 
B) I * S 
C) X - M 
D) GNP - Y

Question 15

If the interest rate rises in the U.S.while other variables remain constant

Accepted Answer

A) capital inflows into the U.S.will increase. 
B) capital inflows into the U.S.may not materialize. 
C) capital will flow out of the U.S. 
D) none of the above 
A) capital inflows into the U.S.will increase. 
B) capital inflows into the U.S.may not materialize. 
C) capital will flow out of the U.S. 
D) none of the above

Question 16

In 2007 the United States had a current account deficit.The current account deficit implies that the United States

Accepted Answer

A) had a surplus on legal consulting and engineering services. 
B) produced more output than it consumed. 
C) consumed more output than it produced. 
D) none of the above 
A) had a surplus on legal consulting and engineering services. 
B) produced more output than it consumed. 
C) consumed more output than it produced. 
D) none of the above

Question 17

Suppose a country is currently experiencing a trade deficit.In the long run,this could be self correcting if

Accepted Answer

A) the deficit exists because of the import demand for capital goods. 
B) the deficit exists because of the import demand for consumption goods. 
C) the deficit exists because foreigners want to buy the country's currency as an investment. 
D) none of the above 
A) the deficit exists because of the import demand for capital goods. 
B) the deficit exists because of the import demand for consumption goods. 
C) the deficit exists because foreigners want to buy the country's currency as an investment. 
D) none of the above

Question 18

The capital account is divided into three subcategories: direct investment,portfolio investment,and other investment.Direct investment involves.

Accepted Answer

A) acquisitions of controlling interests in foreign businesses. 
B) investments in foreign stocks and bonds that do not involve acquisitions of control. 
C) bank deposits, currency investment, trade credit, and the like. 
D) all of the above 
A) acquisitions of controlling interests in foreign businesses. 
B) investments in foreign stocks and bonds that do not involve acquisitions of control. 
C) bank deposits, currency investment, trade credit, and the like. 
D) all of the above

Question 19

Which of the following is a true statement?

Accepted Answer

A) BCA  $\equiv$ X - M 
B) BKA  $\equiv$ X - M 
C) BKA - BCA  $\equiv$X - M 
D) BKA $\equiv$ X - M. 
A) BCA  $\equiv$ X - M 
B) BKA  $\equiv$ X - M 
C) BKA - BCA  $\equiv$X - M 
D) BKA $\equiv$ X - M.

Question 20

With regard to the capital account

Accepted Answer

A) the capital account balance measures the difference between U.S.sales of assets to foreigners and U.S.purchases of foreign assets. 
B) U.S.sales (or exports) of assets are recorded as credits, as they result in capital inflow. 
C) U.S.purchases (imports) of foreign assets are recorded as debits, as they lead to capital outflow. 
D) all of the above 
A) the capital account balance measures the difference between U.S.sales of assets to foreigners and U.S.purchases of foreign assets. 
B) U.S.sales (or exports) of assets are recorded as credits, as they result in capital inflow. 
C) U.S.purchases (imports) of foreign assets are recorded as debits, as they lead to capital outflow. 
D) all of the above

Exam 3: Balance of Payments

Regarding the statistical discrepancy in the balance-of-payments accounts

A depreciation will begin to improve the trade balance immediately if

When Nestlé,a Swiss firm,bought the American firm Carnation,it was engaged in foreign direct investment.If Nestlé had only bought a non-controlling number of shares of the firm,

If a country must make a net payment to foreigners because of a balance-of-payments deficit,the country should

BKA stands for

The "J-curve effect" shows

Invisible trade refers to

The balance on the reserves account (BRA),under the pure flexible exchange regime is

The current account balance is given by

There is an intimate relationship between a country's BCA and how the country finances its domestic investment and pays for government expenditures.Given this,in order for a country to reduce a BCA deficit,which of the following must occur?

Under the fixed exchange rate regime

Transactions in currency,bank deposits and so forth

If Japan exports more than it imports,then

The difference between a country's savings and investment is given by

If the interest rate rises in the U.S.while other variables remain constant

In 2007 the United States had a current account deficit.The current account deficit implies that the United States

Suppose a country is currently experiencing a trade deficit.In the long run,this could be self correcting if

The capital account is divided into three subcategories: direct investment,portfolio investment,and other investment.Direct investment involves.

Which of the following is a true statement?

With regard to the capital account

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