ECO 344 Chapter 13

Please refer to the above table. The GNI for the economy provided is: a) $11,400. b) $12,295. c) $10,550. d) $10,595.

$10,595.

Table: Hypothetical U.S. National Income and Product Accounts Data Category Billions of dollars Consumption 8,000 Investment 1,300 Government expenditures 2,100 Exports 900 Imports 1,750 NFIA +45 Net unilateral transfers -20 The trade balance for the economy provided is: a) $850 (trade deficit). b) -$850 (trade deficit). c) $2,650 (trade surplus). d) -$900 (trade deficit).

-$850 (trade deficit).

A foreigner purchases $10,000 worth of bonds issued by Target from a broker and pays for the bonds with his bank account at Bank of America. This transaction will a) affect both the current account and the financial account for the U.S. b) result in a U.S. financial account deficit. c) be recorded only in the financial account. d) cause the U.S. to accumulate more debt from the rest of the world.

Be recorded only in the financial account.

Table: National Income and Product Accounts Data in Ireland Category Billions of dollars Exports 500 Imports 600 Foreign income payments to domestic factors 100 Domestic income payments to foreign factors 400 Net unilateral transfers -10 According to the table, Ireland has a current account _________ and is a net _________. a) surplus; lender b) surplus; borrower c) deficit; lender d) deficit; borrower

Deficit; borrower

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.

Financial account surplus.

A deficit in the financial account means the nation has: a) imported more assets than it has exported. b) exported more assets than it has imported. c) invested more than it has saved. d) consumed more than it has produced

Imported more assets than it has exported.

If a U.S. citizen purchases shoes from a Japanese firm for $100, and pays for them with his Chase credit card, the two accounts in the U.S. balance of payments that are affected are: a) imports of goods with a minus and exports of goods with a plus. b) imports of goods with a minus and exports of financial assets with a plus. c) exports of goods with a minus and imports of financial assets with a plus. d) exports of goods with a plus and imports of financial assets with a minus.

Imports of goods with a minus and exports of financial assets with a plus.

Which of the following is FALSE? a) Personal consumption (C) is the biggest component of US GNE. b) Trade balance (TB) is the biggest component of US current account. c) In recent years, US national saving is greater than investment. d) In recent years, US is a net borrower on the financial market.

In recent years, US national saving is greater than investment.

In the United States, during the period of 1995 to 2012, the current account deficit greatly ____ because of a(n) ____ in trade deficit, thus, GDP was ______ than GNE. a) increased; increase; lower b) decreased; decrease; higher c) increased; increase; higher d) increased; decrease; lower

Increased; increase; lower

According to the balance of payments identity (ignore capital account), if a nation has a current account surplus, it is a net ____ and it must have a financial account ____. a) borrower; deficit b) lender; deficit c) borrower; surplus d)lender; surplus

Lender; deficit

If investment exceeds national savings, then the current account: a) must be positive. b) must be zero. c) must be negative. d) Not enough information is provided to answer the question.

Must be negative.

Please refer to the above table. Which of the following statements is NOT correct? a) GNDI is less than GNI because of negative net unilateral transfers. b) The economy has a current account deficit of 825 billion dollars. c) National saving is higher than investment. d) GNE exceeds GDP for this economy.

National saving is higher than investment.

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.

Personal consumption spending, government spending, and investment spending.

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.

Subtracting imports and adding exports.

When analyzing macroeconomic 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) income distribution, which does 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.

The fact that international transactions can create an imbalance in the current account, so that GDP is not necessarily equal to GNI or GNE.

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.

The sum of the trade balance, net factor income from abroad, and net unilateral transfers.

Double-entry accounting means that: a) balances be double-checked by another employee and an auditor. b) transactions be entered twice into the same account and then reversed. c) transactions are categorized into two offsetting accounts that reflect the two sides of every transaction. d) for transactions that are missed, we compensate by doubling at least one other entry.

Transactions are categorized into two offsetting accounts that reflect the two sides of every transaction.

If we add the current account balances for every nation in the world, 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.

Zero