Question 1

Economists summarize a country's transactions with other countries with a(n) _____ account.

Accepted Answer

The balance of payments account summarizes a country's transactions with other countries including imports, exports, capital inflows, and outflows. The circular flow model is a simplified representation of the flow of goods and services in the economy. Exchange rate refers to the value of a currency in relation to another currency. Purchasing power parity refers to the idea that the exchange rate should adjust to equalize the purchasing power of different currencies.

Question 2

If the balance of payments on financial account is $25, the balance of payments on goods and services is -$20, and the statistical discrepancy in the financial account is $2, then the sum of net international transfer payments and net international factor income is:

Accepted Answer

A

Question 3

When the United States gives foreign aid to developing nations in Africa, the _____ account is affected.

Accepted Answer

A

Question 4

If a country has a current account deficit, it must have a:

Accepted Answer

A current account deficit means the country is spending more on foreign trade than it is earning, and it must borrow from other countries to finance this deficit. The borrowing shows up in the financial account as a surplus, because the country is receiving financial inflows (e.g., investments, loans) to balance the deficit in the current account. The balance of payments, which includes the current account and the financial account among others, is always balanced by accounting mechanisms.

Question 5

Use the following to answer questions:
Table: International Transactions 
-(Table: International Transactions) Look at the table International Transactions. What additional capital inflows are needed to equilibrate the balance of payments?

Accepted Answer

The answer of Use the following to answer questions:
Table: International...

Question 6

Assume that Tom sells a crate of Florida oranges to a retailer in Canada and Susan sells a U.S. bond to a customer in Britain. Which of the following illustrates the difference and/or similarity between these two transactions?

Accepted Answer

The sale of the bond generates a liability for the U.S. as it represents a debt obligation, while the sale of oranges is a straightforward export transaction without creating a liability.

Question 7

Which of the following would be included in the U.S. current account?

Accepted Answer

The current account includes the trade balance, which is the difference between exports and imports of goods and services. Public and private purchases and sales of financial assets are part of the financial account.

Question 8

Use the following to answer questions:
Table: International Transactions 
-(Table: International Transactions) Look at the table International Transactions. The balance of payments on goods and services is:

Accepted Answer

The answer of Use the following to answer questions:
Table: International...

Question 9

If the United States imports more goods from Japan than it exports to Japan, how will the difference be financed?

Accepted Answer

If the United States imports more goods from Japan than it exports to Japan, the difference will be financed by selling assets, generating a liability that obligates Americans to pay for those imports in the future. This means that the United States will be borrowing money from Japan to finance its trade deficit. The liability in this case refers to the monetary obligation that the United States owes to Japan for the goods it has imported.

Question 10

When a Japanese investor buys stock in General Motors, the _____ account is affected.

Accepted Answer

When an investor buys stock in a company, it affects their financial account, which tracks their investments in stocks, bonds, and other financial assets. The current account tracks a country's trade in goods and services, while the reserve account tracks a country's foreign exchange reserves. The foreign exchange account tracks the exchange of one currency for another, which may apply if the investor needs to convert their Japanese yen into U.S. dollars to buy the GM stock.

Question 11

Use the following to answer questions:
Table: International Transactions 
-(Table: International Transactions) Look at the table International Transactions. The balance on current account is:

Accepted Answer

The answer of Use the following to answer questions:
Table: International...

Question 12

Open-economy macroeconomics deals with:

Accepted Answer

Open-economy macroeconomics deals with the relationships between economies of different nations, including trade, capital flows, exchange rates, and international debt. It does not relate to reducing regulations, employment discrimination, or providing financial information to investors.

Question 13

The difference between a country's exports and imports of goods alone-not including services-is the:

Accepted Answer

The difference between a country's exports and imports of goods alone is known as the merchandise trade balance. This refers to the balance of trade in goods only, without taking into account other types of transactions such as services, income, and transfers.

Question 14

If the United States exports $100 billion of goods and services and imports $150 billion of goods and services and there is no other factor income or transfers, the balance on the current account is:

Accepted Answer

The current account balance is calculated as Exports - Imports. Therefore, the current account balance in this case would be $100 billion - $150 billion = -$50 billion, indicating a trade deficit. Since the balance is negative, the correct answer is D.

Question 15

Which of the following would be included in the U.S. financial account?

Accepted Answer

The financial account includes transactions that involve the purchase or sale of assets, such as bonds, between residents of a country and the rest of the world.

Question 16

Which of the following would NOT be included in the U.S. financial account?

Accepted Answer

The U.S. financial account records international transactions involving financial assets such as stocks, bonds, and direct investment in businesses. Importing a Chinese video game into the United States is a transaction involving a physical product and would be recorded in the U.S. current account, not the financial account. Therefore, option D would not be included in the U.S. financial account.

Question 17

Which of the following would be included in the U.S. current account?

Accepted Answer

The current account records transactions involving the exchange of goods, services, income, and current transfers between countries. Option C falls under income and represents a payment made to a foreign investor for holding a financial asset in the U.S. Therefore, it would be included in the U.S. current account. Options A, B, and D are capital account transactions and do not affect the calculation of the current account balance.

Question 18

When the dollar value of the Swiss franc was very high following the financial crisis in 2008:

Accepted Answer

When the value of the Swiss franc was very high, Swiss exports were more expensive in the United States. This is because a stronger Swiss franc makes it more expensive for American consumers to buy Swiss goods, making them less appealing and competitive in the U.S. market.

Question 19

Use the following to answer questions:
Table: International Transactions 
-(Table: International Transactions) Look at the table International Transactions. The merchandise trade balance is:

Accepted Answer

The answer of Use the following to answer questions:
Table: International...

Question 20

If the United States exports $100 billion of goods and services and imports $150 billion of goods and services and there is no other factor income or transfers, the balance on the financial account is:

Accepted Answer

The answer of If the United States exports $100 billion...

Quiz 19: Open-Economy Macroeconomics

Economists summarize a country's transactions with other countries with a(n) _____ account.

If the balance of payments on financial account is $25, the balance of payments on goods and services is -$20, and the statistical discrepancy in the financial account is $2, then the sum of net international transfer payments and net international factor income is:

When the United States gives foreign aid to developing nations in Africa, the _____ account is affected.

If a country has a current account deficit, it must have a:

Use the following to answer questions: Table: International Transactions -(Table: International Transactions) Look at the table International Transactions. What additional capital inflows are needed to equilibrate the balance of payments?

Assume that Tom sells a crate of Florida oranges to a retailer in Canada and Susan sells a U.S. bond to a customer in Britain. Which of the following illustrates the difference and/or similarity between these two transactions?

Which of the following would be included in the U.S. current account?

Use the following to answer questions: Table: International Transactions -(Table: International Transactions) Look at the table International Transactions. The balance of payments on goods and services is:

If the United States imports more goods from Japan than it exports to Japan, how will the difference be financed?

When a Japanese investor buys stock in General Motors, the _____ account is affected.

Use the following to answer questions: Table: International Transactions -(Table: International Transactions) Look at the table International Transactions. The balance on current account is:

Open-economy macroeconomics deals with:

The difference between a country's exports and imports of goods alone-not including services-is the:

If the United States exports $100 billion of goods and services and imports $150 billion of goods and services and there is no other factor income or transfers, the balance on the current account is:

Which of the following would be included in the U.S. financial account?

Which of the following would NOT be included in the U.S. financial account?

Which of the following would be included in the U.S. current account?

When the dollar value of the Swiss franc was very high following the financial crisis in 2008:

Use the following to answer questions: Table: International Transactions -(Table: International Transactions) Look at the table International Transactions. The merchandise trade balance is:

If the United States exports $100 billion of goods and services and imports $150 billion of goods and services and there is no other factor income or transfers, the balance on the financial account is: