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Indicate whether the statement is true or false.
1. Americans would have to pay more for imported goods if the U.S. dollar were to lose its position as the main reserve
currency of the world and the dollar were to depreciate because foreigners no longer bought dollars as they did when the
dollar served as the reserve currency.
a. True
b. False
2. The world economy is currently in approximate balance concerning consumption levels, savings rates, and fiscal
deficits of advanced countries and emerging countries.
a. True
b. False
3. 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.
a. True
b. False
4. The U.S. unilateral transfers balance has consistently registered surplus in the past two decades.
a. True
b. False
5. Refer to Table 10.3. The payments data suggest that the United States was a “net demander” of $30 billion from the rest
of the world.
a. True
b. False
6. A surplus on Germany’s goods and services balance indicates that Germany has sold more goods and services to
foreigners than it has bought from them over a one-year period.
a. True
b. False
7. For the first time since World War II, the United States became a net international creditor in the mid-1980s and has
remained so ever since.
a. True
b. False
8. Refer to Table 10.3. The current account balance registered a surplus of $30 billion.
a. True
b. False
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9. If a country realizes a current account deficit in its balance-of-payments, it becomes a net supplier of funds to the rest of
the world.
a. True
b. False
10. By the mid-1980s, the United States had evolved from the status of a net creditor nation to a net debtor nation in its
balance of international indebtedness.
a. True
b. False
11. The United States would be a net creditor if the value of U.S. assets abroad exceeded the value of foreign assets in the
United States.
a. True
b. False
12. Although the United States has realized merchandise trade deficits since the early 1980s, its goods and services
balance has always registered surplus.
a. True
b. False
13. Refer to Table 10.3. The unilateral transfers balance registered a deficit of $40 billion.
a. True
b. False
14. Because a large number of international transactions fail to get recorded, statisticians insert a residual, known as
statistical discrepancy, to ensure that total debits equal total credits.
a. True
b. False
15. One problem of adopting the special drawing right (SDR) as a reserve currency is that the SDR is backed by nothing
other than the good faith and credit of the International Monetary Fund (IMF)—that is, the IMF produces nothing to
support the value of the SDR.
a. True
b. False
16. Refer to Table 10.3. The “net exports” component of the U.S. gross domestic product registered $-110 billion.
a. True
b. False
17. For the United States, merchandise trade has generally constituted the largest portion of its goods and services
account.
a. True
b. False
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18. Rapid growth of production and employment is commonly associated with large or growing trade surpluses and
current account surpluses.
a. True
b. False
19. Often, countries realizing rapid economic growth rates possess long-run current account deficits.
a. True
b. False
20. Because the United States dollar is the main reserve currency of the world, the U.S. government must pay higher
interest rates to foreigners who purchase its securities.
a. True
b. False
21. The official reserve assets of the United States consist of special drawing rights (SDRs), foreign currencies, gold, and
drawings at the International Monetary Fund.
a. True
b. False
22. The balance-of-payments refers to the stock of trade and investment transactions that exists at a particular point in
time.
a. True
b. False
23. 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.
a. True
b. False
24. Concerning the balance-of-payments, a current account surplus means an excess of exports over imports of goods,
services, investment income, and unilateral transfers.
a. True
b. False
25. 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.
a. True
b. False
26. Refer to Table 10.3. The services balance registered a surplus of $100 billion.
a. True
b. False
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27. 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.
a. True
b. False
28. On the U.S. balance-of-payments statement, a capital inflow would occur if a Swiss resident purchases the securities
of the U.S. government.
a. True
b. False
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
Amount
(billions of dollars)
Transaction
Allocation of SDRs 10
Changes in U.S. assets abroad 100
Statistical discrepancy -15
Merchandise imports -400
Payments on foreign assets in U.S. –20
Remittances, pensions, transfers -60
Travel and transportation receipts, net 30
Military transactions, net -10
Investment income, net 100
Merchandise exports 350
U.S. government grants (excluding military) -20
Changes in foreign assets in the U.S. 190
Other services, net 80
Receipts on U.S. investments abroad 30
Compensation of employees -10
29. Refer to Table 10.3. The merchandise trade balance registered a deficit of $50 billion.
a. True
b. False
30. The merchandise trade account on the balance-of-payments statement is defined the same way as net exports, which
constitutes part of the nation’s gross domestic product.
a. True
b. False
31. If Toyota Inc. of Japan builds an automobile assembly plant in the United States, the Japanese capital account would
register an outflow.
a. True
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b. False
32. If the current account of the balance-of-payments registers a deficit, the capital account registers a surplus, and vice
versa.
a. True
b. False
33. The official reserve assets of the United States consist of holdings of gold and foreign corporate securities.
a. True
b. False
34. 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.
a. True
b. False
35. For the U.S. balance-of-payments statement, the sum of debits and credits on all transactions will always be equal—
that is, the balance-of-payments always balances.
a. True
b. False
36. Because the rest of the world has accepted dollars, the United States has faced virtually no (or minimal) constraint on
its ability to realize current account deficits.
a. True
b. False
37. About 25 percent of the world’s official foreign exchange reserves are held in U.S. dollars.
a. True
b. False
38. Concerning the balance-of-payments, a current account deficit results in a worsening of a country’s net foreign
investment position.
a. True
b. False
39. In the past two decades, the U.S. services balance has generally registered surplus.
a. True
b. False
40. Concerning the balance-of-payments, the goods and services balance is commonly referred to as the “trade balance”
by the news media.
a. True
b. False
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41. In recent years, most economists have argued that the U.S. dollar should be replaced by either the British pound or the
Japanese yen as the world’s main reserve currency.
a. True
b. False
42. Current account transactions include direct foreign investment, purchases of foreign government securities, and
commercial bank loans made abroad.
a. True
b. False
43. All countries of the world can simultaneously have balance-of-payments deficits.
a. True
b. False
44. If the special drawing right (SDR) was used as an international currency, the cost of doing business would likely go up
for firms and investors. This is because another step would be added to international transactions, as buyers and sellers
would have to convert their local currencies into SDRs.
a. True
b. False
45. On the balance-of-payments statement, dividend and interest income are classified as capital-account transactions.
a. True
b. False
46. 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.
a. True
b. False
47. Although a net debtor country may initially benefit from an inflow of savings from abroad, over the long run
continued borrowing may result in growing dividend payments to foreigners and a drain on the debtor country’s economic
resources.
a. True
b. False
48. Most economists believe that in the 1980s, a massive outflow of capital caused a current account deficit for the United
States.
a. True
b. False
49. In the balance-of-payments statement, statistical discrepancy is treated as part of the merchandise trade account
because merchandise transactions are generally the most frequent source of error.
a. True
b. False
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50. If Bank of America receives repayment of a loan (the principle) it made to a Mexican firm, the U.S. capital account
would register an inflow.
a. True
b. False
51. Referring to the balance-of-payments statement, an international transaction refers to the exchange of goods, services,
and assets between residents of one country and those abroad.
a. True
b. False
52. Services transactions on Canada’s balance-of-payments statement would include Canadian ships transporting lumber
to Japan, foreign tourists spending money in Canada, and Canadian engineers designing bridges in China.
a. True
b. False
53. The capital account of the balance-of-payments includes private sector transactions as well as official settlements
transactions of the home country’s central bank.
a. True
b. False
54. Most economists contend that any reduction in the current account deficit is better achieved through increased national
saving than through reduced domestic investment.
a. True
b. False
55. A current account deficit for the United States necessarily reduces the standard of living for American households.
a. True
b. False
56. Since the 1980s, the merchandise trade account of the U.S. balance-of-payments has registered deficit.
a. True
b. False
57. In recent years, China has proposed an overhaul of the international monetary system in which the special drawing
right (SDR) would eventually replace the dollar as the world’s main reserve currency.
a. True
b. False
58. As the main reserve currency of the world, the Euro serves as a medium of exchange, unit of account, and store of
value.
a. True
b. False
59. That U.S. importers purchase bananas from Brazil constitutes a debit transaction on the U.S. balance-of-payments.
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a. True
b. False
60. On the U.S. balance-of-payments, the following transactions are debits, leading to payments to foreigners:
merchandise imports, travel expenditures, gifts to foreign residents, and overseas investments by U.S. residents.
a. True
b. False
61. The balance-of-payments includes international transactions of households and businesses, but not government.
a. True
b. False
62. To reduce a current account deficit, a country should either decrease the budget deficit of its government or reduce
investment spending relative to saving.
a. True
b. False
63. Because the balance-of-payments utilizes double entry accounting, merchandise exports will always be in balance
with merchandise imports.
a. True
b. False
64. For the United States, a consequence of its current account deficit is a growing foreign ownership of the capital stock
of the United States and a rising fraction of U.S. income that must be diverted abroad in the form of interest and dividends
to foreigners.
a. True
b. False
65. Refer to Table 10.3. The goods and services balance registered a surplus of $50 billion.
a. True
b. False
66. Unilateral transfers refer to two-sided transactions, reflecting the movement of goods and services in one direction
with corresponding payments in the other direction.
a. True
b. False
67. On the balance-of-payments statement, a capital inflow can be likened to the import of goods and services.
a. True
b. False
68. An increase in import restrictions by the U.S. government tends to reduce a merchandise trade deficit.
a. True
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b. False
69. That U.S. charities donate funds to combat starvation in Africa constitutes a debit transaction on the U.S. balance-of-
payments.
a. True
b. False
70. In 2016, the Chinese yuan replaced the U.S. dollar as the main reserve currency of the world.
a. True
b. False
71. Because the balance-of-payments is a record of the economic transactions of a country over a period of time, it is a
flow concept.
a. True
b. False
72. That German investors collect interest income on their holdings of U.S. Treasury bills constitutes a credit transaction
on the U.S. balance-of-payments.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
73. When all of the debit or credit items in the balance-of-payments are combined
a. merchandise imports equal merchandise exports.
b. capital imports equal capital exports.
c. services exports equal services imports.
d. the total surplus or deficit equals zero.
74. Over its history, suppose that France has borrowed more from the rest of the world than it has lent to the rest of the
world. This means that France
a. has realized continuous deficits in its current account.
b. has realized continuous surpluses in its goods and services account.
c. has a very large unilateral transfers balance.
d. is a net-creditor nation.
75. The value of direct investment by Ford Motor Co. in Canada is included in the U.S.
a. capital and financial account.
b. current account.
c. net export account.
d. merchandise trade account.
76. In recent decades, the U.S. has generated a ___________in its ________account.
a. surplus, services
b. deficit, services
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c. surplus, goods
d. surplus, current
77. According to researchers at the Federal Reserve, the loss of jobs associated with a deficit in the current account tends
to be
a. offset by the increase of jobs associated with a surplus in the capital account.
b. reinforced by the decrease of jobs associated with a surplus in the capital account.
c. a threat to the level of employment for the economy as a whole.
d. of no long-run economic consequence for workers who lose their jobs.
78. Credit items on the U.S. balance-of-payments statement result in
a. a deficit on the current account of the United States.
b. a deficit on the capital and financial account of the United States.
c. an inflow of foreign exchange for the United States.
d. an outflow of foreign exchange for the United States.
79. U.S. military aid granted to foreign countries is entered in the
a. merchandise trade account.
b. capital account.
c. current account.
d. official settlements account.
80. Reducing a current account deficit requires a country to
a. increase the government’s deficit and increase private investment relative to saving.
b. increase the government’s deficit and decrease private investment relative to saving.
c. decrease the government’s deficit and increase private investment relative to saving.
d. decrease the government’s deficit and decrease private investment relative to saving.
81. Which of the following would call for an inflow of payments to the United States?
a. American imports of German steel
b. gold flowing out of the United States
c. American unilateral transfers to less-developed countries
d. American firms selling insurance to British shipping companies
82. A positive balance in the capital and financial account suggests that a country
a. is realizing a surplus on its current account.
b. is realizing a deficit on its current account.
c. is lending to the rest of the world.
d. exports more goods and services than it imports.
83. Adopting the special drawing right (SDR) as a reserve currency might possibly occur if the United States was to
operate continuous bad economic policy in the form of
a. deficit spending.
b. high inflation.
c. currency depreciation.
d. All of these are correct.
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84. Which balance-of-payments item does not directly enter into the calculation of the U.S. gross domestic product?
a. merchandise imports
b. shipping and transportation receipts
c. direct foreign investment
d. service exports
85. Reducing a current account surplus requires a country to
a. increase the government’s deficit and increase private investment relative to saving.
b. increase the government’s deficit and decrease private investment relative to saving.
c. decrease the government’s deficit and increase private investment relative to saving.
d. decrease the government’s deficit and decrease private investment relative to saving.
86. If the United States is a net borrower from, or lender to, the rest of the world, this is best indicated by the U.S.
a. balance-of-payments position.
b. current account balance.
c. merchandise trade balance.
d. net export balance.
87. Debt (-) items in the balance-of-payments correspond to anything that
a. involves receipts from foreigners.
b. involves payments to foreigners.
c. increases the domestic money supply.
d. decreases the demand for foreign exchange.
88. Assuming there is a burden from a current account deficit, that burden would have the least impact on a country if the
current account deficit is used to finance
a. unemployment compensation benefits.
b. Social Security benefits.
c. expenditures on food and recreation.
d. investment in plant and equipment.
89. Which of the following is classified as a credit in the U.S. balance-of-payments?
a. U.S. exports
b. U.S. gifts to other countries
c. a flow of gold out of the U.S.
d. foreign loans made by U.S. companies
90. The U.S. balance of trade position is in part determined by
a. exchange rates.
b. growth of foreign consumers’ incomes.
c. relative prices in world markets.
d. All of these are correct.
91. A country that is a net international debtor initially experiences
a. an augmented savings pool available to finance domestic spending.
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b. a higher interest rate, which leads to lower domestic investment.
c. a loss of funds to trading partners overseas.
d. a decrease in its services exports to other countries.
92. Unlike the balance-of-payments, the balance of international indebtedness indicates the international
a. investment position of a country at a given moment in time.
b. investment position of a country over a one-year period.
c. trade position of a country at a given moment in time.
d. trade position of a country over a one-year period.
93. Throughout the past 30 years, the U.S. balance-of-payments statement has indicated both
a. a positive balance on the current account and a positive balance on the capital and financial account.
b. a negative balance on the current account and a negative balance on the capital and financial account.
c. a positive balance on the current account and a negative balance on the capital and financial account.
d. a negative balance on the current account and a positive balance on the capital and financial account.
94. If Japanese investors purchase Treasury bills of the U.S. government, this results in a
a. debit transaction in the U.S. current account.
b. credit transaction in the U.S. current account.
c. debit transaction in the U.S. capital and financial account.
d. credit transaction in the U.S. capital and financial account.
95. The United States realizes several benefits from the dollar serving as the main reserve currency of the world, including
a. Americans can buy goods at a marginally cheaper price than households in other nations who must exchange their
currency with each purchase and pay a transaction cost.
b. Americans can borrow at lower interest rates for homes and automobiles.
c. the U.S. government can finance larger deficits longer and at lower interest rates.
d. All of these are correct.
96. Because the United States continues to run significant ___________, some have argued that ____________ should be
a reserve currency, because it is _______________.
a. current account surpluses, the Swiss franc, more fiat-based than the U.S. dollar
b. current account deficits, a cryptocurrency, a more sound money
c. capital and financial account deficits, the British pound, more highly valued now after Brexit
d. current account deficits, the Euro, more fully backed by gold than the dollar
97. In a country’s balance-of-payments, which of the following transactions are debits?
a. Domestic bank balances owned by foreigners are decreased.
b. Foreign bank balances owned by domestic residents are decreased.
c. Assets owned by domestic residents are sold to nonresidents.
d. Securities are sold by domestic residents to nonresidents.
98. Concerning the U.S. balance-of-payments statement, throughout the past 30 years
a. the current account balance and the capital account balance have moved in the opposite direction.
b. the current account balance and the capital account balance have moved in the same direction.
c. the official reserve assets of the U.S. government have shrunk to zero.
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d. unilateral transfers have shrunk significantly.
99. A credit transaction would appear on the balance-of-payments as a result of
a. the import of goods and services.
b. domestic residents touring overseas.
c. transfer payments made to foreign relatives.
d. an inflow of investment capital.
100. The current account of the United States includes all of the following EXCEPT
a. trade in goods and services.
b. unilateral transfers.
c. income receipts and payments.
d. gold flows between the United States and foreign central banks.
Table 10.1 gives hypothetical figures for U.S. international transactions.
Table 10.1. U.S. International Transactions
Amount
Transaction (billions of dollars)
Merchandise imports 110
Military transactions, net -5
Remittances, pensions, transfers -20
U.S. private assets abroad -50
Merchandise exports 115
Investment income, net 15
U.S. government grants -5
(excluding military)
Foreign private assets in the U.S. 25
Compensation of employees -5
Allocation of SDRs 5
Travel and transportation receipts, net 20
101. Referring to Table 10.1, the goods and services balance equals
a. $5 billion.
b. $15 billion.
c. $20 billion.
d. $25 billion.
102. Which of the following represents a possible benefit of using a cryptocurrency like Bitcoin as a reserve currency?
a. It is not fiat money.
b. Its value is backed by gold.
c. It is highly centralized.
d. It is volatile.
103. The U.S. has a balance of trade deficit when its
a. merchandise exports exceed its merchandise imports.
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b. merchandise imports exceed its merchandise exports.
c. goods and services exports exceed its goods and services imports.
d. goods and services imports exceed its goods and services exports.
104. If an American receives dividends from the shares of stock she or he owns in Toyota, Inc., a Japanese firm, the
transaction would be recorded on the U.S. balance-of-payments as a
a. capital account debit.
b. capital account credit.
c. current account debit.
d. current account credit.
Table 10.2. International Investment Position of the United States
U.S. assets abroad
U.S. government assets $800 billion
U.S. private assets $200 billion
Foreign assets in the U.S.
Foreign official assets $600 billion
Foreign private assets $300 billion
105. Consider Table 10.2. The U.S. balance of international indebtedness suggests that the United States is a net
a. debtor.
b. creditor.
c. spender.
d. exporter.
106. If the U.S. current account balance is negative
a. the United States lends to other countries who purchase goods and services from the United States.
b. the United States borrows from other countries to pay for the goods and services that the United States buys from
them.
c. the U.S. balance of international indebtedness shows that the United States is a net creditor nation.
d. the U.S. balance of international indebtedness shows that the United States is a net exporting nation.
107. The current account of the U.S. balance-of-payments does not include
a. investment income.
b. merchandise exports and imports.
c. the sale of securities to foreigners.
d. unilateral transfers.
108. As the world’s main reserve currency, the U.S. dollar is used throughout the world as a
a. medium of exchange.
b. unit of account.
c. store of value.
d. All of these are correct.
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109. Suppose an American resident earns $100,000 on a financial investment in China. This would be recorded in the
__________ because ___________.
a. current account, it represents income from a capital flow from a previous year
b. capital account, it represents an inflow of funds into the United States
c. services account, it represents a type of U.S. business services export
d. None of these are correct.
110. In recent years, the two largest holders of U.S. government securities have been
a. China and Japan.
b. Mexico and Canada.
c. Brazil and Spain.
d. Germany and France.
111. Which of the following represents a problem with the Chinese yuan becoming a reserve currency?
a. China does not have an open financial market.
b. China does not have a large economy.
c. China holds too many dollars.
d. The yuan is not currently part of the SDR.
112. Which of the following is considered a capital inflow?
a. a sale of U.S. financial assets to a foreign buyer
b. a loan from a U.S. bank to a foreign borrower
c. a purchase of foreign financial assets by a U.S. buyer
d. a U.S. citizen’s repayment of a loan from a foreign bank
113. For the United States, a loss in its reserve currency position would likely result in which of the following?
a. imports becoming more expensive
b. lower interest rates on private debt.
c. more foreign investment in the United States
d. lower interest rates on government debt
114. Which of the following transactions would result in a credit for the United States?
a. U.S. households importing beer from German breweries
b. Chinese investors purchasing securities of the U.S. government
c. German tourists visiting Yellowstone National Park
d. U.S. construction firms contracting with Japanese architects to design their buildings
115. The ______ is currently the main reserve currency of the global trading and financial system
a. Euro
b. Chinese yuan
c. British pound
d. None of these is correct.
116. A Canadian lumber company purchases a sawmill in the state of Washington. On the U.S. balance-of-payments
statement, this transaction appears in the
a. current account.
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b. net exports account.
c. net imports account.
d. capital and financial account.
117. All of the following are credit items in the balance-of-payments, except
a. investment inflows.
b. merchandise exports.
c. payments for American services to foreigners.
d. private gifts to foreign residents.
118. Concerning a country’s business cycle, rapid growth of production and employment is commonly associated with
a. large or growing trade deficits and current account deficits.
b. large or growing trade deficits and current account surpluses.
c. small or shrinking trade deficits and current account deficits.
d. small or shrinking trade deficits and current account surpluses.
119. Reducing a current account deficit requires a country to
a. increase private saving relative to investment.
b. increase private consumption relative to saving.
c. increase private investment relative to consumption.
d. increase private investment relative to saving.
120. If Japan lends more to the rest of the world than it borrows from the rest of the world, Japan is a
a. net borrowing country.
b. net lending country.
c. net exporting country of goods and services.
d. net importing country of goods and services.
121. For the U.S. balance-of-payments statement, which of the following is NOT recorded in the capital and financial
account?
a. net interest income from international investments
b. purchases of Chinese stocks and bonds
c. sales of Mexican stocks and bonds
d. the acquiring of a business firm in another country
122. A debit transaction would appear on the balance-of-payments as a result of
a. outflows of investment capital.
b. the export of services abroad.
c. transfer payments received by domestic residents.
d. the export of goods abroad.
123. Concerning the U.S. balance-of-payments statement, the sum of debits and credits on all transactions will always
a. be equal.
b. show a deficit.
c. show a surplus.
d. be unequal.
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124. Mary Smith, a resident of Denver, Colorado, purchases a Swiss watch in Chicago. On the U.S. balance-of-payments
statement, this transaction appears on the
a. official reserve asset account.
b. net borrowing and lending account.
c. current account.
d. services account.
125. Which of the following supports China’s argument for having the SDR become a reserve currency?
a. China has a very limited financial stake in dollar-denominated financial assets.
b. China runs a trade deficit with its largest trade partner.
c. China converts surplus dollars into Japanese yen and uses them to buy Japanese government securities.
d. None of these is correct.
126. Concerning the balance-of-payments statement, the ______ indicates the receipts from exports of goods and services
sold overseas, the payments for imports of goods and services from overseas, unilateral transfers (net), and income
receipts and payments (net).
a. capital and financial account
b. current account
c. official reserve asset account
d. monetary gold account
127. A debit in the U.S. current account would be represented by
a. earnings on U.S. investments abroad flowing into the United States.
b. gifts that Americans make to the poor in Africa.
c. Chinese investors purchasing the securities of the U.S. government.
d. exports of Boeing jetliners to South Korea.
128. If the U.S. faces a balance-of-payments deficit on the current account, it must run a surplus on
a. the official settlements account.
b. the capital and financial account.
c. either the official settlements account or the capital and financial account.
d. both the official settlements account and the capital account.
129. If General Electric Inc. pays dividends to its Canadian stockholders, this represents a
a. debit in the U.S. current account.
b. credit in the U.S. current account.
c. debit in the U.S. capital and financial account.
d. credit in the U.S. capital and financial account.
130. If Germany has invested over its history more in other countries than other countries have invested in Germany, then
Germany is a
a. net creditor nation.
b. net debtor nation.
c. net importer of goods and services.
d. net exporter of stocks and bonds.
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131. If the United States government sells military hardware to Saudi Arabia, the transaction would be recorded on the
U.S. balance-of-payments as a
a. current account debit.
b. current account credit.
c. capital account debit.
d. capital account credit.
132. In recent decades, the United States has been an example of
a. a net exporter of goods.
b. a net importer of services.
c. a net lending country.
d. a net borrowing country.
133. The role of ________ is to direct one nation’s savings into another nation’s investments.
a. merchandise trade flows
b. services flows
c. current account flows
d. capital flows
134. The _____ tabulates the U.S. balance-of-payments.
a. U.S. International Trade Commission
b. U.S. Department of Labor
c. Council of Economic Advisors
d. U.S. Department of Commerce
135. For the United States, the largest component of its current account transactions consists of
a. payments for imports of goods and services and receipts from exports of goods and services.
b. payments for military transactions with other countries.
c. travel and transportations payments and receipts with other countries.
d. unilateral transfers to other countries and from other countries.
136. If an American purchases a ticket from Scandinavian Airlines, paying by a personal check, which of the following
entries would be the result?
a. a credit in Norway’s service account
b. a debit in Norway’s service account
c. a credit in the U.S. unilateral transfers account
d. a debit in the U.S. unilateral transfers account
137. If U.S. investors purchase Treasury bills of the British government, this results in a
a. debit transaction in the U.S. current account.
b. credit transaction in the U.S. current account.
c. debit transaction in the U.S. capital and financial account.
d. credit transaction in the U.S. capital and financial account.
138. A deficit in the U.S. current account is offset by a surplus
a. in the U.S. trade account.
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b. in the U.S. balance-of-payments.
c. in the U.S. capital and financial account.
d. in the U.S. official reserve assets.
139. To “balance” the U.S. balance-of-payments, U.S. Commerce Department statisticians employ
a. accounting transactions.
b. inflows or outflows of gold reserves.
c. statistical discrepancy.
d. inflows or outflows of government securities.
140. The balance of international indebtedness is a record of a country’s international
a. investment position over a period of time.
b. investment position at a fixed point in time.
c. trade position over a period of time.
d. trade position at a fixed point in time.
Table 10.1 gives hypothetical figures for U.S. international transactions.
Table 10.1. U.S. International Transactions
Amount
Transaction (billions of dollars)
Merchandise imports 110
Military transactions, net -5
Remittances, pensions, transfers -20
U.S. private assets abroad -50
Merchandise exports 115
Investment income, net 15
U.S. government grants -5
(excluding military)
Foreign private assets in the U.S. 25
Compensation of employees -5
Allocation of SDRs 5
Travel and transportation receipts, net 20
141. Referring to Table 10.1, the current account balance equals
a. $5 billion.
b. $10 billion.
c. $15 billion.
d. $20 billion.
142. In recent years, ______ has been the world’s largest international debtor
a. the United States.
b. China.
c. Japan.
d. the United Kingdom.
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143. Which of the following represents a problem with the SDR yuan becoming a reserve currency?
a. The SDR does not include the U.S. dollar.
b. The SDR does not have an established settlement mechanism.
c. The SDR gets too much of its value from the Chinese yuan.
d. The SDR is only available to a small group of countries.
144. Greece’s position as a ___________ is because it ________.
a. net debtor, spends too much and saves too little
b. net creditor, spends too much and saves too little
c. net debtor, spends too little and saves too much
d. net creditor, spends too little and saves too much
145. Germany’s position as a ___________ is because it ________.
a. net debtor, spends too much and saves too little
b. net creditor, spends too much and saves too little
c. net debtor, spends too little and saves too much
d. net creditor, spends too little and saves too much
146. Credit (+) items in the balance-of-payments correspond to anything that
a. involves receipts from foreigners.
b. involves payments to foreigners.
c. decreases the domestic money supply.
d. increases the demand for foreign exchange.
147. For the first time since World War I, in 1985 the United States became a net international
a. exporter.
b. importer.
c. debtor.
d. creditor.
148. About two-thirds of the world’s official foreign exchange reserves are held in
a. gold.
b. British pounds.
c. Japanese yen.
d. U.S. dollars.
149. A negative balance in the capital and financial account suggests that a country
a. is realizing a surplus on its current account.
b. is realizing a deficit on its current account.
c. is borrowing from the rest of the world.
d. imports more goods and services than it exports.
150. When the United States imports goods and services from other countries, the United States
a. makes payments to other countries.
b. receives payments from other countries.
c. becomes a net lender to other countries.
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d. receives interest income from other countries.
151. If a resident of Japan purchases an insurance policy from the U.S. insurance company Progressive, which of the
following entries would be the result?
a. a debit in the U.S. service account
b. a credit in the U.S. service account
c. a credit in Japan’s unilateral transfers account
d. a debit in Japan’s unilateral transfers account
152. If the United States has a negative balance on its current account, it
a. is a net lender to the rest of the world.
b. is a net borrower from the rest of the world.
c. realizes a negative balance on its capital and financial account.
d. runs a surplus in the budget of the federal government.
153. On the balance-of-payments statements, merchandise imports are classified in the
a. current account.
b. capital account.
c. unilateral transfer account.
d. official settlements account.
154. When a country realizes a deficit on its current account
a. its net foreign investment position becomes positive.
b. it becomes a net demander of funds from other countries.
c. it realizes an excess of exports over imports on goods and services.
d. it becomes a net supplier of funds to other countries.
155. Concerning the balance of international indebtedness, when is a country a net creditor or a net debtor?
156. What are the components of the current account of the balance-of-payments?
157. How do we measure the international investment position of the United States at any point in time? How did the U.S.
become a net debtor nation so rapidly?
158. What does a current account deficit mean?
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Answer Key
1. True
2. False
3. False
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