Page 1
1.
Tracking and measuring international flows of goods and assets are based on principles
of:
A)
economics.
B)
statistics.
C)
historical precedents.
D)
accounting.
2.
Summaries of international flows of goods and assets are recorded in a nation’s:
A)
national income and product accounts.
B)
balances with the IMF.
C)
balance of payments accounts.
D)
balance on international indebtedness.
3.
Gross national expenditure in a closed economy is defined as:
A)
government spending net of taxes.
B)
personal consumption spending, government spending, and investment spending.
C)
personal consumption spending, government spending, investment spending, and
spending on exports.
D)
production of consumer goods, government services, and capital goods.
4.
In national accounts data, which is the largest share of GNEs?
A)
consumption
B)
investment
C)
government consumption
D)
All are roughly equal in size.
5.
In a closed economy, income generated from production is equal to:
A)
GNE.
B)
GDP.
C)
GNI.
D)
GNE, GDP, and GNI.
Page 2
6.
In a closed economy in which no international economic activity occurs, which of the
following is NOT true?
A)
Production in the nation must equal total demand (spending on final goods and
services).
B)
Total spending is equal to the sum of consumer spending, business investment, and
government purchases.
C)
Value added in the economy is equal to income paid to factors of production.
D)
Value added in the economy is equal to the sum of consumer spending, business
investment, and government purchases.
7.
The circular flow concept of a closed economy helps to explain why:
A)
firms are able to earn profits.
B)
GDP, GNI, and GNE are equal.
C)
unemployment is not a problem in a closed economy—only in an open economy.
D)
nominal GDP is always higher than real GDP.
8.
The personal consumption expenditure includes all of the following, EXCEPT spending
by private households on:
A)
final goods and services.
B)
nondurable goods.
C)
durable goods.
D)
capital stock.
9.
Government consumption expenditure includes the following, EXCEPT government
spending on:
A)
national defense.
B)
public works.
C)
Social Security.
D)
civil services.
10.
Income paid to factors is called:
A)
national income.
B)
value added.
C)
net exports.
D)
the current account.
Page 3
11.
Which of the following factors is NOT part of the current account of a country?
A)
exports
B)
imports
C)
unilateral transfers
D)
Social Security contributions
12.
When calculating GDP in an open economy, we adjust GNE by:
A)
subtracting exports and adding imports.
B)
subtracting investment from foreigners and adding foreign investment by residents.
C)
subtracting imports and adding exports.
D)
subtracting depreciation from GDP.
13.
In the flow diagram representing an open economy, which of the following is true?
A)
GNE plus the trade balance (TB) are equal to GDP (total domestic production).
B)
GNE are always less than GDP.
C)
GDP rises as GNI rises.
D)
GNE plus imports are equal to GDP.
14.
When calculating gross national disposable income in an open economy, we adjust
gross national expenditure by:
A)
subtracting exports and adding back imports.
B)
adding in net income earned from foreign sources, plus the trade balance, plus net
unilateral transfers from abroad.
C)
subtracting depreciation, payroll taxes, and indirect business taxes, while adding in
subsidies.
D)
taking out net factor income from abroad and subtracting net unilateral transfers.
15.
The current account of the balance of payments is calculated as:
A)
the sum of imports, exports, and transfers.
B)
the sum of national income and national expenditure.
C)
the sum of the trade balance, net factor income from abroad, and net unilateral
transfers.
D)
the difference between GDP and GNE.
Page 4
16.
Net factor income from abroad is defined as:
A)
the difference between foreign GDP and U.S. GDP.
B)
the difference between what foreign firms pay U.S. factors of production hired to
produce foreign GDP and what U.S. firms pay foreign factors of production hired
to produce U.S. GDP.
C)
taxes paid on income earned outside the country.
D)
the difference between foreign national income and U.S. national income.
17.
The term net unilateral transfers refers to:
A)
income earned abroad by a nation’s own workers minus income paid to foreign
non-resident workers.
B)
gifts, charitable contributions, and foreign aid.
C)
gifts, charitable contributions, and aid to foreign residents minus the same types of
transfers to residents of the home nation.
D)
government subsidies to home corporations minus the same government subsidies
to international corporations.
18.
The disposable income of a nation is known as gross national disposable income, which
can be defined as:
A)
income earned from production plus net factor income from abroad plus net
unilateral transfers.
B)
income not saved and not spent.
C)
government transfers to residents plus foreign transfers to residents.
D)
income that is more than necessary to sustain life.
19.
In an open economy, GNI is equal to:
A)
exports of goods and services plus imports of goods and services.
B)
GDP.
C)
GDP, minus factor services imports, plus factor services exports.
D)
GDP plus international transfers and gifts to foreigners.
20.
Asset exports occur when domestic entities:
A)
save internationally by purchasing foreign assets.
B)
borrow internationally by selling assets to foreigners.
C)
increase savings and decrease spending both domestically and internationally.
D)
decrease savings and increase spending on foreign goods.
Page 5
21.
The difference (balance) between asset exports and asset imports is called:
A)
the current account.
B)
the balance of debt.
C)
capital remainder flows.
D)
the balance on the financial account.
22.
The total economic activity in a nation is an important measure. There are three
approaches that economists use to measure key indicators. Which is a method that
economists do NOT use to measure economic activity?
A)
the accounting approach, using the idea that total private sales have to equal total
private production
B)
the income approach measuring income received by factors of production
C)
the expenditure approach, using the idea that the total economic activity is equal to
the combined purchases of the various sectors
D)
the product approach, which measures GDP from a production standpoint
23.
An advantage to calculating national income from value added is that it avoids:
A)
the net present value.
B)
price changes.
C)
double counting.
D)
measurement error.
24.
How do we handle intermediate goods and services when converting from GNE to
GDP?
A)
Intermediate goods are already counted in GNE, so they do not have to be added in
to GDP.
B)
Imported intermediate goods are counted in GNE, so they must be subtracted from
GDP to avoid double counting.
C)
Exported intermediate goods are counted in GNE, so they must be subtracted from
GDP to avoid double counting.
D)
We add (to GNE) the value of imported goods and services and subtract the value
of exported goods and services to get GDP.
Page 6
25.
(Table: Hypothetical U.S. National Income and Product Accounts Data) Using the table,
the GNE is:
A)
$9,300 billion.
B)
$3,400 billion.
C)
$10,550 billion.
D)
$11,400 billion.
26.
(Table: Hypothetical U.S. National Income and Product Accounts Data) Using the table,
the trade balance for the economy provided is:
A)
$1,750 billion.
B)
–$900 billion.
C)
$2,650 billion.
D)
–$850 billion.
Page 7
27.
(Table: Hypothetical U.S. National Income and Product Accounts Data) The GDP for
the economy provided is:
A)
$11,400 billion.
B)
$10,575 billion.
C)
$10,550 billion.
D)
$10,595 billion.
28.
(Table: Hypothetical Canadian National Income and Product Accounts Data) Using the
table, the GNE is:
A)
$630 billion.
B)
$550 billion.
C)
$230 billion.
D)
$120 billion.
Page 8
29.
(Table: Hypothetical Canadian National Income and Product Accounts Data) Using the
table, the trade balance for the economy provided is:
A)
–$60 billion.
B)
–$150 billion.
C)
$150 billion.
D)
$270 billion.
30.
(Table: Hypothetical Canadian National Income and Product Accounts Data) Canada is
running a:
A)
trade surplus.
B)
balance of payments surplus.
C)
trade deficit.
D)
balance of payments deficit.
Page 9
31.
(Table: Hypothetical Canadian National Income and Product Accounts Data) The GDP
for the economy provided is:
A)
$630 billion.
B)
$780 billion.
C)
$840 billion.
D)
$1,025 billion.
32.
(Table: Hypothetical Canadian National Income and Product Accounts Data) The GNI
for the economy provided is:
A)
$10 billion.
B)
$20 billion.
C)
$780 billion.
D)
$790 billion.
Page 10
33.
(Table: Hypothetical Irish National Income and Product Accounts Data) Using the table,
the GNE is:
A)
$900 billion.
B)
$550 billion.
C)
$630 billion.
D)
$1,800 billion.
34.
(Table: Hypothetical Irish National Income and Product Accounts Data) The trade
balance for Ireland is:
A)
–$100 billion.
B)
$0 billion.
C)
$50 billion.
D)
$150 billion.
Page 11
35.
(Table: Hypothetical Irish National Income and Product Accounts Data) Ireland is
running a:
A)
trade deficit.
B)
balance of payments surplus.
C)
trade surplus.
D)
balance of payments deficit.
36.
(Table: Hypothetical Irish National Income and Product Accounts Data) The GDP for
Ireland is:
A)
$150 billion.
B)
$600 billion.
C)
$780 billion.
D)
$1,500 billion.
Page 12
37.
(Table: Hypothetical Irish National Income and Product Accounts Data) The GNDI for
Ireland is:
A)
$680 billion.
B)
$685 billion.
C)
$690 billion.
D)
$615 billion.
38.
Which of the following statements about the relationships between the domestic and
international economy is true?
A)
Domestic sales of goods and services to a foreign nation are always equal to
domestic purchases of goods and services from the same nation.
B)
Total goods and services produced and sold domestically by domestic firms plus
imports are equal to the total domestic production plus exports.
C)
GDP = GNE + (exports – imports).
D)
Intermediate goods and services purchased by domestic firms from foreign firms
are equal to international sales of intermediate goods to foreign firms.
39.
Because of vertically specialized production processes, the volume of intermediate
goods trade has risen. In 2010, it was approximately ____ of total world trade.
A)
15%
B)
25%
C)
40%
D)
60%
40.
NFIA is the same thing as:
A)
world real GDP.
B)
sales of factor services to foreigners minus purchases of factor services from
foreign nations.
C)
income paid to domestic workers.
D)
exactly 20% of domestic GDP.
Page 13
41.
A firm in one nation may purchase factor services from another nation. Payments for
these services to the factors of production are called:
A)
service income payments.
B)
net income.
C)
gross income.
D)
wage and salary income.
42.
The relationship between GNI and GDP is:
A)
GNI – GDP = factor income receipts from foreign sources – payments of income to
foreign factors (by domestic firms).
B)
GDP is equal to GNI within the nation.
C)
GDP is always less than GNI because of domestic transfer payments.
D)
GNI includes transfers and gifts from the rest of the world; GDP does not.
43.
The difference between gross national income and gross domestic product is:
A)
total indirect employee costs such as health or retirement insurance.
B)
income earned in addition to salaries, commissions, and bonuses.
C)
income earned abroad by residents minus income paid to foreign factors of
production.
D)
income not subject to taxation such as capital gains, illegal earnings, or casual
earnings.
44.
GDP is measured by:
A)
examining how much is spent on demand for final goods and services.
B)
tracking the amount of income received by different domestic entities.
C)
the net value of all goods and services produced by the private sector.
D)
the net value of all goods and services produced by home firms, excluding the
value of intermediate goods.
Page 14
45.
(Table: Hypothetical U.S. National Income and Product Accounts Data) The GNI for
the economy provided is:
A)
$1,900 billion.
B)
$1,700 billion.
C)
$2,300 billion.
D)
$3,300 billion.
46.
The example in the text about Ireland demonstrates that:
A)
every nation has the power to export and grow its economy through receipt of
foreign investment.
B)
GNI should not be used to measure the income of domestic factors of production.
C)
a nation’s GDP is not a good measure of income paid to domestic factors when
payments to foreign factors are large.
D)
countries should rely heavily on foreign investment to generate economic growth
and increase their GDP.
47.
The Irish example indicates that GDP per capita and GNI per capita:
A)
are always equal.
B)
are usually close to each other.
C)
can be quite different.
D)
are unrelated.
48.
The difference between Irish GDP per capita and Irish GNI per capita was:
A)
the result of poor accounting.
B)
the result of a large trade deficit.
C)
an outcome from FDI inflows.
D)
essentially zero.
Page 15
49.
When measuring GNI in an open economy, one must recognize not only net transfer
payments to factors of production but also:
A)
net profit paid to corporations.
B)
the increase in asset prices as a result of foreign investment.
C)
income earned in the underground economy.
D)
net unilateral transfers, which include official aid and private charitable gifts.
50.
GNDI is a superior measure of a nation’s welfare because it considers net foreign factor
earnings and other sources of income available to the population. The GNDI identity
equation is as follows:
A)
Y = GNDI = consumer production + capital goods (business investment) +
government + net exports.
B)
Y = GNDI = GNI + NUT.
C)
Y = GNDI = wages + profits + interest + rental income + net foreign factor income.
D)
Y = GNDI = foreign aid + income from outsourcing + returns on foreign
investment.
51.
(Table: Hypothetical Canadian National Income and Product Accounts Data) According
to the NUTs, economists would say that:
A)
Canada has given away more foreign aid than it receives.
B)
Canadians abroad have sent a lot of income home.
C)
Mexicans in Canada have sent a lot of income home.
D)
Canada has a balance of payments deficit.
Page 16
52.
(Table: Hypothetical Canadian National Income and Product Accounts Data) The GNDI
for the economy provided is:
A)
$11,825 billion.
B)
$10,615 billion.
C)
$8,625 billion.
D)
$8,600 billion.
53.
Net transfers of income from foreign sources play a ____ role in the donor countries, but
often play a _____ role in the economies of the recipient nations.
A)
major; minor
B)
neutral; significant
C)
minor; major
D)
significant; neutral
54.
According to the article on the generosity of wealthy nations in helping low-income
nations, the United States:
A)
gave the least in absolute terms, although it had pledged to give the most.
B)
was the largest single-nation donor, although in percentage of aid based on
economic size, it was below most other developed nations.
C)
was the only nation that could be counted on to help tsunami victims or provide
free drugs for AIDS patients in Africa.
D)
has dramatically raised the level of foreign aid during the past 20 years.
55.
The assistance the United States provides to developing countries is through:
A)
cash transfers only.
B)
debt forgiveness only.
C)
defense spending only.
D)
cash transfers, debt forgiveness, and defense spending.
Page 17
56.
(Table: Hypothetical Canadian National Income and Product Accounts Data) What is
the current account for Canada?
A)
$165 billion
B)
$150 billion
C)
$15 billion
D)
$5 billion
57.
(Table: Hypothetical Irish National Income and Product Accounts Data) What is the
current account for Ireland?
A)
$310
B)
$290
C)
–$290
D)
–$410
58.
When a closed economy is compared with an open economy, what situation exists?
A)
Economic activity is directed entirely by the state in an open economy.
B)
Exports and imports are monitored and controlled, so there is never a trade
imbalance in a closed economy.
C)
In a closed economy, because there are no exports or imports, no international
transfers, and no service payments, GDP, GNE, GNI, and GNDI are all equal.
D)
GDP is always higher than GNE in an open economy because some goods remain
unsold into the next accounting period.
Page 18
59.
When analyzing economic situations in an open economy instead of a closed economy,
one must take into account:
A)
only the production of final goods and services rather than intermediate goods or
services.
B)
the relationship between domestic investment and the nominal rate of interest.
C)
the influence of international political relationships, which do not exist in a closed
economy.
D)
the fact that international transactions can create an imbalance in the current
account, so that GDP is not necessarily equal to GNI or GNE.
60.
In the United States, during the period 1990 to 2009, the current account deficit greatly
____ because of a(n) ____ in the trade deficit, thus, GDP was lower than GNE.
A)
increased; increase
B)
decreased; decrease
C)
increased; decrease
D)
decreased; increase
61.
Whenever there is a deficit in the current account GNDI is:
A)
equal to GNE.
B)
greater than GNE.
C)
less than GNE.
D)
equal to GNE only if there is no domestic investment spending.
62.
The current account represents the difference between gross national disposable income
and:
A)
GDP.
B)
GNP.
C)
domestic investment spending.
D)
GNE.
63.
Net national saving is related to the balance on the current account in the following way:
A)
domestic investment = net national saving = the balance on the current account –
gross domestic product – gross national expenditure.
B)
net national saving = domestic investment + the balance on the current account.
C)
net national saving = domestic investment – the balance on the current account.
D)
net national saving + the balance on the current account + domestic investment =
gross domestic product.
Page 19
64.
Whenever the balance on the current account is negative, it indicates that:
A)
the trade deficit is shrinking.
B)
total spending (GNE) in the economy is greater than income and is financed by
borrowing from abroad.
C)
domestic investment cannot be carried out because of a shortage of savings.
D)
domestic investment is decreasing.
65.
For most countries, the savings trend over the past 30 years has been:
A)
upward.
B)
steady.
C)
downward.
D)
downward, but less than the decline in investments.
66.
To fund private investment without borrowing from abroad, a nation may have access
to:
A)
private saving (Y – C).
B)
government saving (G – T).
C)
private saving (C – Y).
D)
unilateral transfer outflows.
67.
If investment exceeds national savings, then the current account:
A)
must be negative.
B)
must be zero.
C)
must be positive.
D)
Not enough information is provided to answer the question.
68.
If investment exceeds private savings, then the current account:
A)
must be negative.
B)
must be zero.
C)
must be positive.
D)
Not enough information is provided to answer the question.
69.
Government budget deficits and trade deficits tend to move:
A)
independently from one another.
B)
together.
C)
in the opposite directions.
D)
independently from one another, except in recessions.
Page 20
70.
(Table: Hypothetical Irish National Income and Product Accounts Data) Are Ireland’s
savings greater or smaller than its investment?
A)
greater
B)
smaller
C)
the same size
D)
Not enough information is provided to answer the question.
71.
If we add the current account balances for every nation, the overall balance will equal:
A)
the size of world GDP.
B)
spending minus savings.
C)
zero.
D)
the value added in the manufacturing sectors of each nation.
72.
The trend of increasingly older populations in industrialized nations probably has
contributed to:
A)
the “demographic burden” whereby there is decreased total saving.
B)
a spike in spending on leisure activities.
C)
an increase in technology and GDP.
D)
an increase in tax collections.
73.
The term private saving is defined as:
A)
government saving minus taxes.
B)
after-tax disposable income minus consumption spending.
C)
the difference between tax revenue and government purchases.
D)
the inflow of investment funds from abroad.
74.
The term government saving is defined as:
A)
government saving minus taxes.
B)
after-tax disposable income minus consumption spending.
C)
the difference between tax revenue and government purchases.
D)
the inflow of investment funds from abroad.
Page 21
75.
Private savings deficits plus government budget deficits contribute to higher current
account deficits. Some economists refer to the Ricardian equivalence theory to assert
that:
A)
the public will offset its future tax liability to some degree by increasing saving.
B)
the public abhors private and public debt and will demand an end to deficits.
C)
savings will increase as the population ages, since older people save more.
D)
the current account deficit is caused by trade and is not influenced by deficit
spending.
76.
Private savings deficits plus government budget deficits contribute to higher current
account deficits. Some economists refer to the ______ during the 1990s to assert that
government deficits are not the major cause of current account deficits.
A)
savings boom
B)
investment boom
C)
baby boom
D)
housing boom
77.
The balance on the financial account summarizes transactions in:
A)
real estate, stocks, bonds, investment, and any financial asset.
B)
goods, services, and bartered items.
C)
accounting services provided by the big-eight accounting firms.
D)
government transfers of currency.
78.
In addition to summarizing international flows of goods and services, factor inputs, and
transfers, ____ includes financial flows such as deposits, purchases of stocks, bonds
investment in plant and equipment, and real estate.
A)
the financial account
B)
balance of payments accounting
C)
the current account
D)
the capital account
79.
The financial account records international transactions involving:
A)
high-value items, such as luxury autos, fine art, and jewelry.
B)
financial assets and “real” assets, including property and structures.
C)
corporate assets such as equipment, machinery, and other forms of capital.
D)
goods and services sold on credit.
Page 22
80.
A deficit in the financial account means the nation has:
A)
imported more assets than it exported.
B)
exported more assets than it imported.
C)
saved more than it invested.
D)
produced more than it consumed.
81.
The capital account is now used mainly for:
A)
errors and omissions.
B)
recording of deeds and trusts.
C)
investment flows that result in the purchase of new capital.
D)
debt forgiveness, confiscation of assets, and nonfinancial assets such as copyrights
and franchises.
82.
Developing nations may have a rather large capital account surplus compared with
developed nations because of:
A)
excessive borrowing.
B)
low GDP per capita.
C)
rapid expansion of the economy.
D)
nonmarket debt forgiveness.
83.
When a national entity invests abroad, economists call it a(n):
A)
external asset.
B)
external liability.
C)
trade deficit.
D)
financial surplus.
84.
The balance on the financial account of the balance of payments does NOT equal:
A)
external assets + external liabilities.
B)
(exports of home assets – imports of home assets) + (exports of foreign assets –
imports of foreign assets).
C)
the net additions to external liabilities – the additions to external assets.
D)
exports of home assets + exports of foreign assets.
85.
Which of the following would cause a financial account (FA) surplus?
A)
the sale of heavy trucks used in construction by a domestic seller to a foreign buyer
B)
the purchase of stock in a U.S. corporation by a U.S. buyer
C)
the purchase of stock in a U.S. corporation by a foreign buyer
D)
the sale of stock in a U.S. corporation held by a foreign owner to a domestic buyer
Page 23
86.
When a domestic investor buys a foreign asset, the financial account:
A)
rises.
B)
stays the same.
C)
falls.
D)
Not enough information is provided to answer the question.
87.
When a domestic investor sells a foreign asset to a foreigner, the financial account:
A)
rises.
B)
stays the same.
C)
falls.
D)
Not enough information is provided to answer the question.
88.
When a domestic investor sells a domestic asset to a foreigner, the financial account:
A)
rises.
B)
stays the same.
C)
falls.
D)
Not enough information is provided to answer the question.
89.
When a domestic investor buys a domestic asset from another domestic investor, the
financial account:
A)
rises.
B)
stays the same.
C)
falls.
D)
Not enough information is provided to answer the question.
90.
Gross national disposable income represents the gross national expenditure plus net
foreign expenditure. To calculate total resources available in the economy for
expenditure purposes, we must add:
A)
depreciation.
B)
net foreign factor income.
C)
net income from asset trades (FA + KA).
D)
net income from asset trades and net foreign factor income.
91.
The balance on the current account equals the negative of the balance on the financial
account, plus:
A)
the trade balance.
B)
net factor income from abroad.
C)
net unilateral transfers.
D)
the negative of the balance on the capital account.
Page 24
92.
When calculating the balance of payments, credit (or [+] entries) are made, EXCEPT
whenever which of the following occurs?
A)
a domestic firm signs a contract to buy half of a foreign company headquartered
overseas
B)
there is a trade surplus
C)
a domestic firm sells bonds to a foreign firm
D)
other nations come to the aid of starving residents by gifts of cash, food, and
medicine
93.
A transaction that results in an increase (+) in its account is known as a(n):
A)
BOP debit.
B)
capital flow.
C)
BOP credit.
D)
asset accretion.
94.
A transaction that results in a decrease (–) in its account is known as a(n):
A)
BOP debit.
B)
capital flow.
C)
BOP credit.
D)
asset accretion.
95.
Double-entry accounting dictates that:
A)
transactions be entered twice into the same account and then reversed.
B)
transactions are categorized into two offsetting accounts that reflect the two sides
of every transaction.
C)
for transactions that are missed, we compensate by doubling at least one other
entry.
D)
balances be double-checked by another employee and an auditor.
96.
Whenever there is an outflow of funds from any of the balance of payments (BOP)
accounts, it is recorded as a ____, and called a _____.
A)
minus; unilateral transfer
B)
minus; BOP debit
C)
plus; BOP credit
D)
plus; current account surplus
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97.
The balance of payments for any nation will always:
A)
be in deficit because nations can spend more than they produce.
B)
be in surplus because overall every nation has some wealth.
C)
balance to zero because with a double-entry accounting system any transaction
always generates an equal transaction with the opposite sign.
D)
be unbalanced because at any point in time money has to be collected or goods
could be in transit.
98.
If George purchases shoes from a Japanese firm for $100, and pays for them by
borrowing $100 on his Japanese credit card, the two accounts that are affected are:
A)
imports of goods with a minus (debit) and exports of goods with a plus (credit).
B)
imports of goods with a minus (debit) and exports of financial assets with a plus
(credit).
C)
exports of goods with a minus (debit) and imports of financial assets with a plus
(credit).
D)
exports of goods with a plus (credit) and imports of financial assets with a minus
(debit).
99.
Assuming all transactions are recorded, if the United States has an overall deficit (–) in
its current account, what is the implication for the balances of the other accounts (capital
and financial)?
A)
Added (FA + KA), they must be in surplus (+) by exactly the same amount.
B)
Their difference (FA – KA) is equal to the deficit (–) in the current account.
C)
Added (FA + KA), they will be in deficit by exactly the same amount.
D)
Their difference (FA – KA) must be equal to zero.
100.
Suppose that an American buys a car from Germany with cash. For the United States,
this counts as a:
A)
current account credit, financial account debit.
B)
current account debit, financial account credit.
C)
current account debit, capital account credit.
D)
current account credit, financial account credit.
101.
Suppose that an Austrian buys a car from Germany with cash. For Germany, this counts
as a:
A)
current account credit, financial account debit.
B)
current account debit, financial account credit.
C)
current account debit, capital account credit.
D)
current account credit, financial account credit
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102.
Suppose that a German trades a mug of beer for a glass of wine from a Frenchman. For
France, this counts as a:
A)
current account credit, current account debit.
B)
financial account debit, financial account credit.
C)
capital account debit, capital account credit.
D)
financial account debit, current account debit.
103.
Suppose that a Japanese investor buys a Korean stock with cash. For Korea, this counts
as a:
A)
current account credit, current account debit.
B)
financial account debit, financial account credit.
C)
capital account debit, capital account credit.
D)
financial account debit, current account debit.
104.
If you get cash for your birthday, you have experienced a:
A)
current account surplus.
B)
capital account surplus.
C)
financial account surplus.
D)
financial account and capital account surplus.
105.
Barter shows up:
A)
only in current account transactions.
B)
only in financial account transactions.
C)
only in capital account transactions.
D)
in both current account and financial account transactions.
106.
The three balances that determine the current account balance are:
A)
the external balance, the internal balance, and the global balance.
B)
the trade balance, the balance on income from factor services, and the balance on
net unilateral transfers.
C)
the credit balance, the debit balance, and the balance of external indebtedness.
D)
the balance on investment, the balance on asset transfers, and the balance on
forgiveness of debt.
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107.
By the rules of double-entry accounting applied to international transactions, which of
the following statements is NOT true?
A)
Every transfer of goods internationally must be paid for by an opposite transfer of
goods, services, or unilateral transfers, or a transfer of assets.
B)
Every debit transaction must be offset somewhere in the accounts by an equal
credit transaction.
C)
Deficits in any accounts are matched exactly by surpluses in an account at a
parallel level.
D)
Every debit transaction must be offset by a transfer of assets.
108.
A nation that has a surplus in its current account:
A)
also has a surplus in both the financial and capital accounts.
B)
must have exported home assets (borrowed from abroad) or reduced its holding of
foreign assets.
C)
must have imported foreign assets (lent or invested abroad) or decreased the
quantity of home assets held by foreigners (paid back loans or deposits).
D)
must have paid back loans or deposits.
109.
During the period in which a nation has a current account surplus, it is a net ____, and
whenever it has a current account deficit, it is a net ____.
A)
supplier; user
B)
lender; borrower
C)
borrower; lender
D)
debtor; creditor
110.
In the financial account, when there is a current account surplus, there must be a(n)
_____ in either the capital or the financial account balance.
A)
deficit (outflow of funds)
B)
surplus (inflow of funds)
C)
balance (no net flow)
D)
equal change (no net flow)
111.
The balance on the financial account consists of:
A)
the inverse of the balance on the current account.
B)
the difference between external wealth and internal wealth.
C)
the change in external liabilities minus the change in external assets.
D)
the change in external wealth plus the change in internal wealth.
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112.
The balance on intervention and other government-initiated asset trades is recorded in
the:
A)
nonreserve financial account.
B)
reserve financial account.
C)
U.S. Treasury international reserve account.
D)
official settlements balance.
113.
The balance on the balance of payments is equal to:
A)
the balance on the current account.
B)
the balance on the financial account.
C)
zero.
D)
the sum of the balances on the financial account plus the capital account.
114.
For the past 50 years, the U.S. BOP has:
A)
risen
B)
held constant.
C)
fallen.
D)
fluctuated.
115.
The current account deficit run by the United States during the past 20 years has been
accompanied by:
A)
higher real GDP and lower unemployment.
B)
exports of assets to the rest of the world.
C)
an increase in corporate profits.
D)
an increase in the U.S. savings rate.
116.
From 1970–2008, the U.S. current account moved further into _______, and it was
accompanied by a corresponding _____ in the financial account.
A)
surplus; deficit
B)
deficit; surplus
C)
surplus; shortfall
D)
balance; surplus
117.
The U.S. current account deficit, which has persisted for over 20 years, has resulted in
a(n):
A)
financial account deficit.
B)
capital account deficit.
C)
financial account surplus.
D)
overall balance of payments deficit.
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118.
A nation that runs a current account deficit will also:
A)
be a net importer of assets.
B)
be a net exporter of assets.
C)
suffer a lack of capital resources.
D)
increase its external wealth.
119.
Current account is the difference between:
A)
gross national disposable income and gross national expenditure.
B)
national income and net factor income from abroad.
C)
gross national income and gross national expenditure.
D)
consumption expenditure and savings.
120.
Which of the following is FALSE?
A)
Gross national disposable income is less than gross national expenditure, if and
only if current account is positive or in surplus.
B)
Gross national disposable income is less than gross national expenditure, if and
only if current account is negative or in deficit.
C)
Savings is greater than investment if and only if current account is positive or in
surplus.
D)
Savings is less than investment if and only if current account is negative or in
deficit.
121.
A nation’s external wealth is defined as:
A)
rest of the world (ROW) assets owned by the home nation minus home assets
owned by foreigners.
B)
home assets owned by foreigners minus ROW assets owned by the home nation.
C)
home assets owned by foreigners plus ROW assets owned by the home nation.
D)
home assets owned by foreigners, minus home assets owned by domestic entities,
minus liabilities owned by domestic entities.
122.
A nation’s external wealth is the same thing as its:
A)
balance with the IMF.
B)
holdings of accounts in foreign banks.
C)
total bonds issued.
D)
net international investment position.
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123.
When the total value of foreign assets owned by the home nation is less than the total
value of home assets owned by foreigners, we say a nation is:
A)
a net creditor to the rest of the world.
B)
a net debtor to the rest of the world.
C)
close to financial collapse.
D)
under pressure to get help from the IMF.
124.
Which of the following is true?
A)
Net exports of foreign assets cause a decrease in external wealth.
B)
Net exports of home assets cause an increase in external wealth.
C)
Net imports of foreign assets cause a decrease in external wealth.
D)
Financial flows do not affect a nation’s international investment position.
125.
When there are capital gains, such as in the real estate or stock markets, or there are
exchange rate changes, we see a change in the external wealth calculation. These are
known as:
A)
financial flows.
B)
investment flows.
C)
valuation effects.
D)
capital flows.
126.
A change in a nation’s external wealth consists of two parts:
A)
a change in GDP plus the change in income.
B)
financial flows plus valuation effects.
C)
an increase in liabilities to the rest of the world matched equally by an increase of
external assets.
D)
debits and credits.
127.
Assume a nation’s external wealth is negative. Also assume all liabilities and assets are
denominated in a foreign currency. How will its wealth change when its currency
appreciates in world markets?
A)
Its external wealth will rise.
B)
Its external wealth will fall.
C)
It depends on the currency in which it has its assets and liabilities.
D)
There will be no change in the value of its wealth.
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128.
External wealth can be increased in three ways. Which of the following is NOT a way
for a nation to increase its external wealth?
A)
selling assets to the rest of the world (ROW)
B)
exporting more and importing less, thus increasing the current account balance
C)
good fortune in holding assets that appreciate in value (capital gain)
D)
forgiveness of debt or foreign aid or grants
129.
If a nation experiences an exchange rate appreciation, what happens to the value of its
external wealth?
A)
It decreases.
B)
It depends on the currency composition of its assets and liabilities.
C)
It increases.
D)
It depends on the size of its assets compared with the size of its liabilities.
130.
Which of the following would cause a nation’s external wealth to decrease?
A)
a decrease in domestic GDP
B)
a decline in domestic real estate prices
C)
a current account deficit
D)
an increase in the unemployment rate
131.
When a country’s currency depreciates, its external wealth:
A)
rises.
B)
stays the same.
C)
falls.
D)
Not enough information is provided to answer the question.
132.
The external wealth of the United States rose by nearly $800 billion during the financial
crisis of 2009. What were some of the factors contributing to this rise?
A)
There were price change effects (capital gains) and an appreciation of the dollar
against other currencies.
B)
The United States paid down a major portion of its outstanding external debt.
C)
The United States received aid from other nations to help it through the financial
crisis.
D)
The United States borrowed from its own gold reserves.
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133.
In 2009, U.S. liabilities were dollar-denominated corporate and official debt for the
most part, while U.S. external assets were mostly equities, bank loans, government debt,
and foreign direct investment, denominated in foreign currencies. When the dollar fell in
the wake of the financial crisis, what net effect was there on U.S. external wealth?
A)
No change occurred because the change in currency value affects everything
equally.
B)
External wealth rose since the value of liabilities was already in dollars and
changed little, but assets denominated in foreign currencies increased in value.
C)
External wealth declined since the dollar fell and U.S. assets were not worth as
much.
D)
External wealth declined since the weak dollar forced the United States to default
on loans.
134.
If one nation experiences a gain in its external wealth due to valuation effects only,
combined, the other nations in the world will experience:
A)
an equal gain since all currencies are worth more.
B)
no change in external wealth.
C)
an equal decline in external wealth.
D)
an increase in the interest they earn.
135.
The primary driving force behind changes in external wealth is:
A)
an imbalance between a nation’s total income and its total spending.
B)
a change in the value of stocks and bonds.
C)
financial innovation that creates different kinds of assets, which may then obscure
their true value.
D)
irresponsible investment and lax government regulation.
136.
The Greeks overstated GDP prior to joining the European Union by including:
A)
consumption.
B)
black-market activities.
C)
government spending.
D)
investment spending
137.
Your text has a discussion of various ways nations can skew income, production, and
price-level data. Why would any nation choose to do so?
A)
to avoid paying its debts
B)
to avoid lower credit ratings or ease concerns of foreign investors
C)
to keep the rich from getting richer
D)
to increase its external wealth
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138.
Describe issues involved in measuring trade and financial flows in an open economy.
139.
Explain the difference between GDP and GNI in an open economy, and why this is an
important distinction.
140.
Explain the relationship between GNE, GNI and GDP in a closed economy.
141.
Looking at the balance of payments for the United States, suppose you see that there is a
current account surplus but a trade deficit. How is this possible?
142.
Many U.S. residents complain that the nation should take care of its own needs before
being generous with taxpayer funds donated to foreign lands. Based on the discussion in
“Headlines: Are Rich Countries “Stingy” with Foreign Aid?,” analyze that complaint.
143.
The United States has experienced large and growing current account deficits for more
than 20 years, whereas Japan has experienced large and growing current account
surpluses for roughly the same period. The U.S. economy has grown at faster rates than
Japan’s over the past 10 years. What might explain the difference? Relate your answer to
the relationship between the current account and GDP.
144.
Your text authors state that in the long run a nation cannot sustain current account
deficits and that every nation must eventually “live within its means.” What does that
mean? What implications are there for the United States?
145.
The current account balance is equivalent to an excess of domestic expenditure (C + I +
G) over gross national domestic income (GNDI). Some say a government budget deficit
adds to this problem. Why?
146.
Suppose consumers decide to save a smaller proportion of their income. What are the
implications for the current account? The financial account?
147.
What is meant by “twin deficits”?
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148.
When analyzing the financial account of the balance of payments, there may be a
situation in which the overall balance is not equal to zero. What could cause this to
happen and how does BOP accounting handle it?
149.
Suppose the following transactions take place: (1) A U.S. book publisher sells $20,000
of books to a Chinese firm. The firm pays for the books by using its Chinese-based
credit card company.; (2) Vlad, a Russian citizen working in New York, earned $6,000
last year working at a factory owned by a U.S .company, and (3) BNP Paribas (a French
bank) has just purchased 20% of outstanding stock in First Commercial Bank (U.S.) for
$200,000 million from Warren Buffet (a U.S. citizen). Buffet takes the check and puts it
in his U.S. bank account. Assuming we started with a trade deficit of zero. What will
these transactions do to our trade deficit?
150.
Suppose the following transactions take place: (1) A U.S. book publisher sells $20,000
of books to a Chinese firm. The Chinese firm pays for the books by using its
China-based credit card company; (2) Vlad, a Russian citizen working in New York,
earned $6000 last year working at a factory owned by a U.S. company, and (3) BNP
Paribas (a French bank) has just purchased 20% of outstanding stock in First
Commercial Bank (a U.S. bank) for $200,000 million from Warren Buffet (a U.S.
citizen). Warren Buffet takes the check and puts it in his U.S. bank account. What will
these transactions do to net external wealth?
151.
Occasionally, dramatic changes in financial account balances are recorded yearly. How
is the financial account balance recorded, and what factors may influence the
calculation?
152.
Explain why a nation with a current account deficit is a net external borrower, while a
nation with a current account surplus is a net external lender.
153.
Explain why sometimes the balance of payments does not balance to zero. What remedy
do we apply to fix the problem?
154.
Give an intuitive explanation that captures the relationship between the current account
position (surplus or deficit) and the role of country as a net borrower or lender.
155.
What two reasons could cause a change in a nation’s external wealth?
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156.
What role do exchange rates play in the net external wealth of a country? Illustrate by
explaining what an exchange rate appreciation can do to a country holding an asset
denominated in foreign currency.
157.
Over the past 30 years, the United States has experienced rising CA deficits. What have
been the effects of the deficits? What fallout has there been on the U.S. economy?
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