Multiple Choice Questions:
1. Which of the following would be recorded as a credit in the U.S. balance-of-payments accounts?
a. The purchase of a German business by a U.S. investor
b. The import of Honda trucks by a U.S. automobile distributor
c. European travel expenditures of an American college student
d. The purchase of a U.S. Treasury bond by a French investment company
2. What is the difference between the balance of merchandise trade and the balance of payments?
a. Only the value of goods imported and exported is included in the balance of merchandise trade, while the balance of payments includes the value of all payments to and from foreigners.
b. The value of goods imported and exported is included in the balance of merchandise trade, while the balance of payments includes only capital account transactions.
c. The value of all goods, services, and unilateral transfers is included in the balance of merchandise trade, while the balance of payments includes both current account and capital account transactions.
d. Balance of merchandise trade and balance of payments both describe the same international exchange transactions.
3. If consumers in Europe and Asia develop strong preferences for U.S. goods, the U.S. current account will?
a. Not be affected, because purchases of U.S. goods by foreigners are recorded in the capital account.
b. Not be affected, because purchases of U.S. goods based on mere preferences are recorded under statistical discrepancy.
c. Move toward surplus, because purchases of U.S. goods are recorded as credits on our current account.
d. Move toward deficit, because purchases of U.S. goods by foreigners are counted as debits in our current account.
4. Which of the following would supply dollars to the foreign exchange market?
a. The sale of a U.S. automobile to a Mexican consumer
b. Spending by British tourists in the United States
c. The purchase of Canadian oil by a U.S. consumer
d. The sale of a U.S. corporation to a Saudi Arabian investor
5. Which of the following will enter as a credit in the U.S. balance-of-payments capital account?
a. The purchase of a Japanese automobile by a U.S. consumer
b. The sale of Japanese electronics to an American
c. The sale of an American baseball team to a Japanese industrialist
d. The purchase of a Japanese electronic plant by an American industrialist
6. If the value of a nation’s merchandise exports exceeds merchandise imports, then the nation is running a?
a. Balance-of-payments deficit.
b. Balance-of-payments surplus.
c. Merchandise trade deficit.
d. Merchandise trade surplus.
7. When goods or services cross international borders?
a. Money must generally move in the opposite direction.
b. Payment must be made in another good, using barter.
c. A future shipment must be made to offset the current sale/purchase.
d. Countries must ship gold to make payment.
8. The balance-of-payments accounts for and records information about?
a. Purchases of U.S. financial assets by foreigners.
b. Purchases of foreign financial assets by Americans.
c. The levels of imports and exports of goods and services for a country.
d. All of the above.
9. Suppose the United States imposed a high tariff on a major imported item. Under a system of flexible rates of exchange, this tariff would tend to?
a. Cause the dollar to appreciate in value.
b. Cause the dollar to depreciate in value.
c. Increase the U.S. balance-of-trade deficit.
d. Increase the U.S. balance-of-payments deficit.
e. Do b, c, and d.
10. Under a system of flexible exchange rates, a deficit in a country’s balance of payments will be corrected by?
a. Depreciation in the nation’s currency.
b. Appreciation in the nation’s currency.
c. A decline in the nation’s domestic price level.
d. An increase in the nation’s inflation rate.