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Chapter 03 Test Bank

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0% found this document useful (0 votes)
80 views40 pages

Chapter 03 Test Bank

Uploaded by

Shaochong Wang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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 1. Award: 10.00 points


 

The current account balance, which is the difference between a country's exports and imports, is a
component of the country's GNP. Other components of GNP include

 consumption and investment and government expenditure.

 consumption and government expenditure and net exports.

 consumption and net exports and government expenditure.

 consumption less imports.

References

Multiple Choice Difficulty:1 Easy

 
 2. Award: 10.00 points
 

If the United States imports more than it exports, one possible outcome is the supply of dollars is
likely to exceed the demand in the foreign exchange market, ceteris parius.

 True

 False

References

True / False Difficulty:1 Easy


 
 3. Award: 10.00 points
 

Balance of payments

 is defined as the statistical record of a country's international transactions over a certain


period of time presented in the form of a double-entry bookkeeping.

 provides detailed information concerning the demand and supply of a country's currency.

 can be used to evaluate the performance of a country in international economic


competition.

 all of the options

References

Multiple Choice Difficulty:1 Easy

 
 4. Award: 10.00 points
 

If a country is grappling with a major balance-of-payment difficulty, it may not be able to expand
imports from the outside world. Instead, the country may be tempted to

 impose measures to restrict imports but encourage capital outflows.

 impose measures to discourage capital outflows but encourage imports.

 impose measures to restrict imports and discourage capital outflows.

 none of the options

References

Multiple Choice Difficulty:1 Easy


 
 5. Award: 10.00 points
 

If the United States imports more than it exports, then

 the supply of dollars is likely to exceed the demand in the foreign exchange market,
ceteris paribus.

 one can infer that the U.S. dollar would be under pressure to depreciate against other
currencies.

 both options are correct

 none of the options

References

Multiple Choice Difficulty:1 Easy

 
 6. Award: 10.00 points
 

Generally speaking, any transaction that results in a receipt from foreigners

 will be recorded as a debit, with a negative sign, in the U.S. balance of payments.

 will be recorded as a debit, with a positive sign, in the U.S. balance of payments.

 will be recorded as a credit, with a negative sign, in the U.S. balance of payments.

 will be recorded as a credit, with a positive sign, in the U.S. balance of payments.

References

Multiple Choice Difficulty:1 Easy


 
 7. Award: 10.00 points  

Generally speaking, any transaction that results in a payment to foreigners

 will be recorded as a debit, with a negative sign, in the U.S. balance of payments.

 will be recorded as a debit, with a positive sign, in the U.S. balance of payments.

 will be recorded as a credit, with a negative sign, in the U.S. balance of payments.

 will be recorded as a credit, with a positive sign, in the U.S. balance of payments.

References

Multiple Choice Difficulty:1 Easy

 
 8. Award: 10.00 points
 

The balance of payments records

 only international trade, (exports and imports).

 only cross-border investments (FDI and portfolio investment).

 not only international trade, (exports and imports) but also cross-border investments.

 none of the options

References

Multiple Choice Difficulty:1 Easy


 
 9. Award: 10.00 points  

Credit entries in the U.S. balance of payments

 result from foreign sales of U.S. goods and services, goodwill, financial claims, and real
assets.

 result from U.S. purchases of foreign goods and services, goodwill, financial claims, and
real assets.

 give rise to the demand for dollars.

 give rise to the supply of dollars.

 result from foreign sales of U.S. goods and services, goodwill, financial claims, and real
assets, and give rise to the demand for dollars.

References

Multiple Choice Difficulty:1 Easy

 
 10. Award: 10.00 points
 

A country experiencing a significant balance-of-payments surplus would be likely to

 expand imports, offering marketing opportunities for domestic enterprises.

 encourage imposing foreign exchange restrictions.

 expand exports, offering international marketing opportunities for domestic enterprises.

 expand imports, offering marketing opportunities for foreign enterprises, and encourage
imposing foreign exchange restrictions.

References

Multiple Choice Difficulty:1 Easy


 
 11. Award: 10.00 points  

Suppose the McDonalds Corporation imports Canadian beef, paying for it by transferring the funds
to a New York bank account kept by the Canadian beef producer.

 Payment by McDonalds will be recorded as a debit.

 The deposit of the funds by the seller will be recorded as a debit.

 Payment by McDonalds will be recorded as a credit.

 The deposit of the funds by the buyer will be credit.

References

Multiple Choice Difficulty:2 Medium

 
 12. Award: 10.00 points
 

Since the balance of payments is presented as a system of double-entry bookkeeping,

 every credit in the account is balanced by a double-matching debit.

 every debit in the account is balanced by a double-matching credit.

 every credit in the account is balanced by a matching debit and every debit in the account
is balanced by a matching credit.

 none of the options

References

Multiple Choice Difficulty:1 Easy


 
 13. Award: 10.00 points
 

Suppose the InBev Corporation (a non-U.S. MNC) buys the Anheuser-Busch Corporation, paying the
U.S. shareholders cash.

 Payment by InBev will be recorded as a debit.

 The deposit of the funds by the sellers will be recorded as a debit.

 Payment by InBev will be recorded as a credit.

 The deposit of the funds by the buyer will be credit.

References

Multiple Choice Difficulty:1 Easy

 
 14. Award: 10.00 points
 

The current account includes

 the export and import of goods and services.

 all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and
businesses.

 all purchases and sales of international reserve assets such as dollars, foreign exchanges,
gold, and special drawing rights (SDRs).

 capital transfers and the cross-border acquisition and disposal of nonproduced


non¬financial assets such as natural resources and marketing assets

References

Multiple Choice Difficulty:1 Easy


 
 15. Award: 10.00 points
 

A country with a current account surplus

 acquires IOUs from foreigners, thereby increasing its net foreign wealth.

 must borrow from foreigners or draw down on its previously accumulated foreign wealth.

 will experience a reduction in the country's net foreign wealth.

 must borrow from foreigners or draw down on its previously accumulated foreign wealth
and will experience a reduction in the country's net foreign wealth.

References

Multiple Choice Difficulty:2 Medium

 
 16. Award: 10.00 points
 

The capital account includes

 the export and import of goods and services.

 capital transfers and acquisitions and disposals of nonpro¬duced, nonfinancial assets


between U.S. residents and foreigners.

 all purchases and sales of international reserve assets such as dollars, foreign exchanges,
gold, and special drawing rights (SDRs).

 goods trade, services, primary income, and secondary income

References

Multiple Choice Difficulty:1 Easy


 
 17. Award: 10.00 points
 

The official reserve account includes

 the export and import of goods and services.

 all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and
businesses.

 all purchases and sales of international reserve assets such as dollars, foreign exchanges,
gold, and special drawing rights (SDRs).

 capital transfers and the cross-border acquisition and disposal of nonproduced


non¬financial assets such as natural resources and marketing assets

References

Multiple Choice Difficulty:1 Easy

 
 18. Award: 10.00 points
 

A country's international transactions can be grouped into the following three main types:

 current account, medium term account, and long term capital account.

 current account, long term capital account, and official reserve account.

 current account, capital account, financial account and official reserve account.

 capital account, official reserve account, trade account.

References

Multiple Choice Difficulty:1 Easy


 
 19. Award: 10.00 points
 

Invisible trade:refers to

 services that avoid tax payments.

 the underground economy.

 trades in legal, consulting, and engineering services.

 the export and import of tangible goods.

References

Multiple Choice Difficulty:1 Easy

 
 20. Award: 10.00 points
 

A country that gives foreign aid to another country can be viewed as

 importing goodwill from the latter.

 exporting goodwill to the latter.

References

Multiple Choice Difficulty:1 Easy


 
 21. Award: 10.00 points
 

In 2012, the United States had a current account deficit. The current account deficit implies that the
United States

 had a surplus on legal consulting and engineering services.

 produced more output than it consumed.

 consumed more output than it produced.

 had a financial account surplus

References

Multiple Choice Difficulty:2 Medium

 
 22. Award: 10.00 points
 

The current account is divided into four finer categories:

 goods trade, services, primary incom, and statistical discrepancy.

 goods trade, services, primary income and secondary income

 goods trade, services, foreign direct investment, and portfolio investment.

 goods trade, services, factor income, and direct investment.

References

Multiple Choice Difficulty:1 Easy


 
 23. Award: 10.00 points  

Primary income

 consists largely of payments and receipts of interest, dividends, and other income on
foreign investments.

 involve “unrequited payments” such as foreign aid and gifts.

 do not generally involve commercial entities.

 includes payments and receipts for legal, consulting, financial and engineering services.

References

Multiple Choice Difficulty:1 Easy

 
 24. Award: 10.00 points
 

The "J-curve effect" shows

 the initial deterioration and the eventual improvement of a country's trade balance
following a currency depreciation.

 the initial improvement and the eventual depreciation of a country's trade balance
following a currency depreciation.

 the trade balance's lack of responsiveness to the exchanges rate changes.

 none of the options

References

Multiple Choice Difficulty:1 Easy


 
 25. Award: 10.00 points
 

A currency depreciation will begin to improve the trade balance immediately

 if the demand for imports and exports are inelastic.

 if the demand for imports and exports are elastic.

 if imports decrease and exports decrease.

 if imports and exports increase

References

Multiple Choice Difficulty:2 Medium

 
 26. Award: 10.00 points  

When a country's currency depreciates against the currencies of major trading partners,

 the country's exports tend to rise and imports fall.

 the country's exports tend to fall and imports rise.

 the country's exports tend to rise and imports rise.

 the country's exports tend to fall and imports fall.

References

Multiple Choice Difficulty:1 Easy


 
 27. Award: 10.00 points  

A depreciation will begin to improve the trade balance immediately if

 imports and exports are responsive to the exchange rate changes.

 imports and exports are inelastic to the exchange rate changes.

 consumers exhibit brand loyalty and price inelasticity.

 imports and exports are inelastic to the exchange rate changes and consumers exhibit
brand loyalty and price inelasticity.

References

Multiple Choice Difficulty:1 Easy

 
 28. Award: 10.00 points
 

In the short run a currency depreciation can make a trade balance worse if

 there is no domestic producer of an import.

 there is no domestic buyer for an import.

 there is no export market for a country's output.

 none of the options

References

Multiple Choice Difficulty:1 Easy


 
 29. Award: 10.00 points
 

In the long run, both exports and imports tend to be

 unresponsive to changes in exchange rates.

 responsive to changes in exchange rates.

 negative influences on the trade balance.

 of no influence to the trade balance.

References

Multiple Choice Difficulty:2 Medium

 
 30. Award: 10.00 points  

The difference between Foreign Direct Investment and Portfolio Investment is that

 Portfolio Investment mostly represents the sale and purchase of foreign financial assets
such as stocks and bonds that do not involve a transfer of control.

 Foreign Direct Investment mostly represents the sale and purchase of foreign financial
assets such as stocks whereas Portfolio Investment mostly involves the sales and
purchase of foreign bonds.

 Portfolio Investment takes place as firms attempt to take advantage of various market
imperfections.

 all of the options

References

Multiple Choice Difficulty:2 Medium


 
 31. Award: 10.00 points  

In the latter half of the 1980s, with a strong yen, Japanese firms

 faced difficulty exporting.

 could better afford to acquire U.S. assets that had become less expensive in terms of yen.

 financed a sharp increase in Japanese FDI in the United States.

 all of the options

References

Multiple Choice Difficulty:1 Easy

 
 32. Award: 10.00 points
 

International portfolio investments have boomed in recent years, as a result of

 a depreciating U.S. dollar.

 increased gasoline and other commodity prices.

 the general relaxation of capital controls and regulation in many countries.

 none of the options

References

Multiple Choice Difficulty:1 Easy


 
 33. Award: 10.00 points
 

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

 capital inflows into the U.S. will increase.

 capital inflows into the U.S. may not materialize.

 capital will flow out of the U.S.

 none of the options

References

Multiple Choice Difficulty:1 Easy

 
 34. Award: 10.00 points  

The financial account measures

 the sum of U.S. sales of assets to foreigners and U.S. purchases of foreign assets.

 the difference between U.S. sales of assets to foreigners and U.S. purchases of foreign
assets.

 the difference between U.S. sales of manufactured goods to foreigners and U.S.
purchases of foreign products.

 none of the options

References

Multiple Choice Difficulty:1 Easy


 
 35. Award: 10.00 points  

When Honda, a Japanese auto maker, built a factory in Ohio,

 it was engaged in foreign direct investment.

 it was engaged in portfolio investment.

 it was engaged in a cross-border acquisition.

 none of the options.

References

Multiple Choice Difficulty:1 Easy

 
 36. Award: 10.00 points
 

Government controlled investment funds, known as sovereign wealth funds,

 are playing a less-important role in international finance following the end of the fixed
exchange rate era.

 are mostly domiciled in Asian and Middle Eastern countries.

 do not play a positive role in stabilizing the global banking system

 none of the options

References

Multiple Choice Difficulty:1 Easy


 
 37. Award: 10.00 points
 

Foreign direct investment (FDI) occurs

 when an investor acquires a measure of control of a foreign business.

 when there is an acquisition, by a foreign entity in the U.S., of 10 percent or more of the
voting shares of a business.

 with sales and purchases of foreign stocks and bonds that do not involve a transfer of
control.

 Both A and B.

References

Multiple Choice Difficulty:1 Easy

 
 38. Award: 10.00 points
 

The financial account may be divided into three categories—

 cross-border mergers and acquisitions, portfolio investment, and other investment.

 direct investment, portfolio investment, and cross-border mergers and acquisitions.

 direct investment, mergers and acquisitions, and other investment.

 direct investment, portfolio investment, and other investment.

References

Multiple Choice Difficulty:1 Easy


 
 39. Award: 10.00 points  

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,

 Nestlé would have been engaged in portfolio investment.

 Nestlé would have been engaged in a cross-border acquisition.

 it would depend if they bought the shares from an American or a Canadian.

 none of the options

References

Multiple Choice Difficulty:2 Medium

 
 40. Award: 10.00 points
 

Transactions in currency, bank deposits and so forth

 tend to be insensitive to both changes in relative interest rates and the anticipated change
in exchange rate.

 tend to be sensitive to both changes in relative interest rates and the anticipated change
in exchange rate.

 tend to be sensitive to changes in relative interest rates but insensitive to the anticipated
change in exchange rate.

 tend to be insensitive to changes in relative interest rates but sensitive to the anticipated
change in exchange rate.

References

Multiple Choice Difficulty:2 Medium


 
 41. Award: 10.00 points
 

Since security returns tend to have low correlations among countries,

 investors can reduce risk more effectively if they diversify their portfolio holdings
internationally rather than purely domestically.

 investors who have a domestically diversified portfolio, with exposures across industry
types will not gain much from diversifying abroad.

 investors who diversify internationally will likely underperform investors who keep all their
investments in one country.

 none of the options

References

Multiple Choice Difficulty:1 Easy

 
 42. Award: 10.00 points
 

The world's largest debtor nation and creditor nation, respectively, are

 Japan and the U.S.

 The U.S. and Japan.

 The U.S. and Canada.

 Great Britain and Mexico.

References

Multiple Choice Difficulty:1 Easy


 
 43. Award: 10.00 points  

Statistical discrepancy, which, by definition, represents errors and omissions,

 cannot be calculated directly.

 is calculated by taking into account the balance-of-payments identity.

 probably has some elements that are honest mistakes, it can't all be money laundering and
drugs.

 all of the options

References

Multiple Choice Difficulty:1 Easy

 
 44. Award: 10.00 points
 

The statistical discrepancy in the balance-of-payments accounts

 arise since recordings of payments and receipts are done at different times, in different
places, possibly using different methods.

 arise because some transactions (illegal transactions) occur "off the books."

 represents omitted and misreported transactions.

 all of the options

References

Multiple Choice Difficulty:1 Easy


 
 45. Award: 10.00 points  

Which of the following is significant because it indicates a country’s international payment gap that
must be accommodated with a government’s official reserve transactions?

 The current account

 The capital account

 The statistical discrepancies

 The official settlement balance

References

Multiple Choice Difficulty:2 Medium

 
 46. Award: 10.00 points
 

The United States is considered

 a net creditor nation.

 a net debtor nation.

References

Multiple Choice Difficulty:1 Easy


 
 47. Award: 10.00 points
 

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

 there is some evidence that financial transactions may be mainly responsible for the
discrepancy.

 the sum of the balance on the financial account and the statistical discrepancy is very
close to the balance of the current account in magnitude.

 it tends to be positive one year and negative in others, so it's safe to ignore it.

 Both A and B.

References

Multiple Choice Difficulty:2 Medium

 
 48. Award: 10.00 points
 

The central bank of the United States is

 the New York Fed.

 the Federal Reserve System.

 the EXIM bank.

 none of the options—the U.S. does not have a central bank.

References

Multiple Choice Difficulty:1 Easy


 
 49. Award: 10.00 points  

When a country must make a net payment to foreigners because of a balance-of-payments deficit,
the central bank of the country

 should do nothing.

 should run down its official reserve assets (e.g., gold, foreign exchanges, and SDRs) only.

 should borrow anew from foreign central banks only.

 should either run down its official reserve assets (e.g., gold, foreign exchanges, and SDRs)
or borrow anew from foreign central banks.

References

Multiple Choice Difficulty:2 Medium

 
 50. Award: 10.00 points
 

Continued U.S. trade deficits coupled with foreigners' desire to diversify their currency holdings
away from U.S. dollars

 could further diminish the position of the dollar as the dominant reserve currency.

 could affect the value of U.S. dollar (e.g., through the currency diversification decisions of
Asian central banks).

 could lend steam to the emergence of the euro as a credible reserve currency.

 all of the options

References

Multiple Choice Difficulty:1 Easy


 
 51. Award: 10.00 points  

Currently, international reserve assets are comprised of

 gold, platinum, foreign exchanges, and special drawing rights (SDRs).

 gold, foreign exchanges, special drawing rights (SDRs), and reserve positions in the
International Monetary Fund (IMF).

 gold, diamonds, foreign exchanges, and special drawing rights (SDRs).

 reserve positions in the International Monetary Fund (IMF), only.

References

Multiple Choice Difficulty:2 Medium

 
 52. Award: 10.00 points
 

International reserve assets include "foreign exchanges". These are

 Special Drawing Rights (SDRs) at the IMF.

 reserve positions in the International Monetary Fund (IMF).

 foreign currencies held by a country's central bank.

 none of the options

References

Multiple Choice Difficulty:1 Easy


 
 53. Award: 10.00 points  

The most important international reserve asset, comprising 94 percent of the total reserve assets
held by IMF member countries is

 gold.

 foreign exchanges.

 special Drawing Rights (SDRs).

 reserve positions in the International Monetary Fund (IMF).

References

Multiple Choice Difficulty:1 Easy

 
 54. Award: 10.00 points
 

The vast majority of the foreign exchange reserves held by central banks are denominated in

 local currencies.

 U.S. dollars.

 Japanese Yen.

 Euro.

References

Multiple Choice Difficulty:1 Easy


 
 55. Award: 10.00 points
 

Which of the following would not count as a foreign exchange reserve held by a central bank?

 The local currency

 U.S. dollar

 Euro

 None of the above

References

Multiple Choice Difficulty:1 Easy

 
 56. Award: 10.00 points  

When the balance-of-payments accounts are recorded correctly, the combined balance of the
current account, the capital account, the financial account, and the reserves account must be zero
and are illustrated by the equation:

 BCA + BKA + BFA + BRA = 0

 BCA + BFA = −BKA

 BCA + BKA + BFA = BRA

 BRA = −BCA

References

Multiple Choice Difficulty:2 Medium


 
 57. Award: 10.00 points  

Under the fixed exchange rate regime, the combined balance on the current accounts will be equal
in size, but opposite in sign and are illustrated by the equation:

 BCA + BKA + BFA − BRA = 0

 BCA + BKA + BFA = −BRA

 BCA + BKA + BFA = BRA

 BRA = −BCA

References

Multiple Choice Difficulty:2 Medium

 
 58. Award: 10.00 points  

When the balance-of-payments accounts are recorded correctly, the combined balance of the
current account, the capital account, the financial account and the reserves account must be

 equal in magnitude to the country's national debt.

 zero.

 equal in magnitude to the trade deficit or surplus.

 none of the options

References

Multiple Choice Difficulty:1 Easy


 
 59. Award: 10.00 points  

Under the pure flexible exchange rate regime, a current account surplus or deficit (assuming the
capital account is negligible) must be matched by a financial account deficit or surplus, and vice
versa. this is illustrated by the equation:

 BCA + BKA + BFA + BRA = 0

 BCA + BKA + BFA = −BRA

 BCA + BKA = −BFA

 BRA = −BCA

References

Multiple Choice Difficulty:1 Easy

 
 60. Award: 10.00 points
 

If the central banks of the world chose to diversify their foreign exchange reserves away from the
dollar and into the euro,

 this would have the result of a strengthening of the value of the dollar.

 could further diminish the position of the U.S. dollar as the dominant reserve currency

 this would not have much impact, as the information would be lost in the day-to-day
volatility of exchange rates.

 none of the options

References

Multiple Choice Difficulty:2 Medium


 
 61. Award: 10.00 points  

The U.S. trade deficit

 is a capital account surplus only.

 is a current account deficit only.

 is both a capital account surplus and a current account deficit.

 none of the options

References

Multiple Choice Difficulty:1 Easy

 
 62. Award: 10.00 points  

As of 2018, gold accounted for

 90 percent of the total reserve assets held by IMF member countries.

 70 percent of the total reserve assets held by IMF member countries.

 approximately 50 percent of the total reserve assets held by IMF member countries.

 less than one percent of the total reserve assets held by IMF member countries.

References

Multiple Choice Difficulty:1 Easy


 
 63. Award: 10.00 points
 

The most dominant currency in the World’s Foerign Exchange Reserves is:

 U.S. dollar.

 Euro.

 Japanese Yen.

 none of the options

References

Multiple Choice Difficulty:1 Easy

 
 64. Award: 10.00 points  

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

 the deficit exists because of the import demand for capital goods.

 the deficit exists because of the import demand for consumption goods.

 the deficit exists because foreigners want to buy the country's currency as an investment.

 none of the options

References

Multiple Choice Difficulty:2 Medium


 
 65. Award: 10.00 points  

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

 acquisitions of controlling interests in foreign businesses.

 investments in foreign stocks and bonds that do not involve acquisitions of control.

 bank deposits, currency investment, trade credit, and the like.

 all of the options

References

Multiple Choice Difficulty:1 Easy

 
 66. Award: 10.00 points  

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

 acquisitions of controlling interests in foreign businesses.

 investments in foreign stocks and bonds that do not involve acquisitions of control.

 bank deposits, currency investment, trade credit, and the like.

 all of the options

References

Multiple Choice Difficulty:1 Easy


 
 67. Award: 10.00 points  

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

 acquisitions of controlling interests in foreign businesses.

 investments in foreign stocks and bonds that do not involve acquisitions of control.

 bank deposits, currency investment, trade credit, and the like.

 all of the options

References

Multiple Choice Difficulty:1 Easy

 
 68. Award: 10.00 points  

Which of the following statements are true regarding the 2017 Tax Cuts and Jobs Act?

 generally eliminated taxes on repatriated earnings

 illustrated a net decrease of direct investment in 2018 due to the repatriation of


accumulated prior earnings of foreign affiliates by their US parent companies

 neither A or B are true.

 both A or B are true.

References

Multiple Choice Difficulty:1 Easy


 
 69. Award: 10.00 points  

Over the last several years, the U.S. has run persistent

 balance-of-payments deficits.

 balance-of-payments surpluses.

 current account deficits.

 capital account deficits.

References

Multiple Choice Difficulty:1 Easy

 
 70. Award: 10.00 points  

Under the pure flexible exchange rate regime,

 a current account surplus or deficit will not be matched by a financial account deficit or
surplus

 the balance on the current and financial accounts will be equal in size, but opposite in sign.

 a current account surplus or deficit must be matched by an official reserves deficit or


surplus.

 a financial account surplus or deficit must be matched by an official reserves deficit or


surplus.

References

Multiple Choice Difficulty:1 Easy


 
 71. Award: 10.00 points
 

The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes

The current account balance is given by

 C+I+G+X+M

 X−M

 I+X+M

 M−X

References

Multiple Choice Difficulty:1 Easy


 
 72. Award: 10.00 points  

The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes

Which of the following is a true statement?

 BCA ≡ X − M

 BKA ≡ X − M

 BKA − BCA ≡ X − M

 BKA ≡ M − X

References

Multiple Choice Difficulty:2 Medium


 
 73. Award: 10.00 points  

The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes
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, which of the following is a
true statement?

 If (S − I) < 0, it implies that a country's domestic savings is insufficient to finance domestic


investment.

 If (T − G) < 0, it implies that a country's tax revenue is insufficient to finance government


spending.

 When BCA is negative, it implies that government budget deficits and/or part of domestic
investment are being finance with foreign-controlled capital.

 All of the options

References

Multiple Choice Difficulty:2 Medium


 
 74. Award: 10.00 points  

The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes

There is an intimate relationship between a country's BCA and how the country finances its
domestic investment and pays for government expenditures. This relationship is given by BCA ≡ X −
M ≡ (S − I) + (T − G). Given this, in order for a country to reduce a BCA deficit, which of the following
must occur?

 For a given level of S and I, the government budget deficit (T − G) must be reduced.

 For a given level of I and (T − G), S must be increased.

 For a given level of S and (T − G), I must fall.

 All of the options would work to reduce a BCA deficit.

References

Multiple Choice Difficulty:2 Medium

 
 75. Award: 10.00 points
 

Which country does the United States currently maintain the largest trade deficit with?

 Canada

 Mexico

 China

 United Kingdom

References

Multiple Choice Difficulty:1 Easy


 
 76. Award: 10.00 points
 

Secondary income

 is the fourth category of the current account

 involves “unrequited” payments called current transfers

 examples include foreign aid, reparations, official and private grants, and gifts.

 all of the above

References

Multiple Choice Difficulty:1 Easy

 
 77. Award: 10.00 points  

Which of the following statements regarding the 2018 U.S. current account are not true?

 The U.S. maintains a surplus on trade in services.

 The U.S. maintains a deficit on trade in goods.

 The U.S. maintains a deficit on the overall trade balance.

 The U.S. maintains a deficit on trade in services.

References

Multiple Choice Difficulty:1 Easy

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