Chapter 10

A country finds itself in the following situation: a government budget surplus of $900; total domestic savings of $200, and total domestic physical capital investment of $1300. According to the national saving and investment identity, if investment decreases by $300 while the government budget surplus and savings remain the same, what will happen to the current account balance? A. $200 deficit changes to $100 surplus B. surplus increases from $200 to $500 C. $200 surplus changes to $100 deficit D. deficit decreases from $900 to $600

A

Which of the following represents a financial inflow to the U.S. economy? A. returns paid on U.S. financial investments in Switzerland B. computer chip imports from Israel C. oil imports from Canada D. foreign aid from the U.S. to Ethiopia

A

A country finds itself in the following situation: the government budget surplus is 2% of its GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national saving and investment identity, if the government budget surplus falls to zero, what will happen to this country's current account balance? A. surplus of 1% drops to 1% deficit of GDP B. surplus of 2% increases to 4% surplus of GDP C. deficit of 1% increases to 2% surplus of GDP D. deficit increases from 1% to 3% of GDP

D

An economics professor is discussing a measure of trade that involves a comparison of exports and imports of goods for the year just ended. What name is given to this measurement? A. export trade balance B. merchandise trade balance C. import trade balance D. current account balance

merchandise trade balance

In 2010, the country of Vesey exported goods worth $312 billion and services worth $198 billion. It imported goods worth $525 billion and services worth $255 billion. It sent $3 billion in famine relief to Africa, and received $1.2 billion to support its first democratic election efforts. What was the current account deficit in Vesey for 2010? A. $251.2 billion B. $270.6 billion C. $213.3 billion D. $271.8 billion

271.8 billion

A country's trade in manufactured goods diminished substantially, causing it to lose tax revenue and become a net borrower of foreign funds. For the next two decades, its government used the borrowed funds to upgrade the nation's waste-water treatment plants and to develop efficient rapid transit systems, creating substantial gainful employment for its workforce. Thereafter, the country began to quickly repay its past borrowing debt. Which of the following most strongly supported this country's successful economic recovery? A. ensuring borrowed funds were invested in long-term productive economic assets B. ensuring that larger borrowing reduced the need for more private savings C. the creation of a trade deficit through more aggressive buying of imports D. global policies of low interest rates charged on funds borrowed by governments

A

When did the U.S. current account balance experience the largest surplus? A. before the 1980s B. 1980s and 1990s C. 1990s and 2000s D. after the 2000s

A

A country finds itself in the following situation: the government budget surplus is 2% of its GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national saving and investment identity, if private savings fall to zero, what will happen to this country's current account balance? A. deficit increases from 2% to 32% of GDP B. deficit increases from 1% to 31% of GDP C. surplus of 1% drops to deficit of 29% of GDP D. surplus of 2% drops to deficit of 28% of GDP

B

If a country's economy records a surplus, how will the X and M components be represented in its national savings and investment identity? A. (X - M); right side B. (X - M); left side C. (M - X); demand side D. (M - X); supply side

B

One insight that can be obtained from the national saving and investment identity is that a nation's balance of trade is determined by: A. foreign investment as a part of supply of financial capital. B. each nation's own levels of domestic saving and domestic investment. C. foreign investment as part of the demand for financial capital. D. all of the world government budgets and the overall global trade balance.

B

Which of the following represents the national savings and investment identity - Supply of financial capital = Demand for financial capital - expressed in algebraic terms? A. (M - X) = I - S - (T - G) B. S + (M - X) = I + (G - T) C. X - M = S + (G - T) - I D. I - S - (T - G) = (M - X)

B

A country finds itself in the following situation: a government budget deficit of $800; total domestic savings of $1800, and total domestic physical capital investment of $1300. According to the national saving and investment identity, what is the current account balance? A. deficit of $1300 B. surplus of $300 C. deficit of $300 D. surplus of $1300

C

A country finds itself in the following situation: the government budget surplus is 2% of its GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national saving and investment identity, what is this country's current account balance? A. deficit of 2% of GDP B. surplus of 1% of GDP C. deficit of 1% of GDP D. deficit of 3% of GDP

C

A country's current national savings and investment identity is expressed in algebraic terms as I - S - (T - G) = (M - X). Assume that the level of domestic investment in a country rises, while the level of private and public saving remains unchanged. In this instance, the rise in domestic: investment will mean A. a higher trade surplus. B. a lower trade surplus. C. a higher trade deficit. D. trade will be perfectly balanced.

C

A period of strong economic growth tends to make a __________________. A. trade surplus larger B. a trade surplus C. trade deficit larger D. both a and b above

C

From a macroeconomic perspective, a payment made by a foreign firm to a U.S. investor looks just like an: A. import of a service. B. import of a good. C. export of a service. D. export of a good.

C

A country's current national savings and investment identity is expressed in algebraic terms as I - S - (T - G) = (M - X). Assume that the level of domestic savings rises, while the level of domestic investment and private saving remains unchanged. In this instance: A. less foreign financial capital is required to meet investment needs. B. government policy will involve increasing private savings. C. the country's trade deficit will decline. D. all of the above

D

During the past year a country's government ran a budget surplus. How will this be represented as a component of in the country's national savings and investment identity? A. (T - G); demand side B. (G - T); right side C. (G - T); left side D. (T - G); saving side

D

In what way are the factors used to calculate the current account balance similar to each other? A. each is like a stream, though some flow in different directions B. all refer to ways governments invest their tax resources C. all reflect workers' unilateral payments to home countries D. each involves a flow of financial payments between countries

D

The national saving and investment identity teaches that the rest of the economy can absorb an inflow of foreign financial capital by: A. reduced private savings, leaving domestic investment and public saving unchanged. B. higher domestic investment, leaving private and public savings unchanged. C. greater government borrowing, leaving domestic saving and investment unchanged. D. leaving domestic saving and investment unchanged using any of the above.

D

Under what circumstances would it most likely be considered beneficial for a government to be a large borrower of foreign investment capital? A. never as there is no economic merit in a policy of running trade deficits B. if the inflow of capital is absorbed by greater government borrowing C. when borrowing larger amounts is based on unconventional macroeconomic wisdom D. when those funds are invested in a way that sustains economic growth over time

D

Under what conditions would a nation be viewed as being neither a net borrower nor a net lender in the international economy? A. it has a low level of trade and a large trade surplus B. it has a medium to high level of trade and a moderate trade surplus C. it has a high level of trade and a moderate trade deficit D. its trade balance is zero

D

In the United States, which of the following government institutions would most likely provide economists with the basic data for merchandise trade? A. Census Bureau B. Department of Commerce C. Bureau of Economic Analysis D. Department of the Treasury

census bureau

Economists typically rely on a broader measure of international trade known as the ____________, which includes ____________. current trade balance; foreign aid announced by the government. . current account balance; telecommunications, computers, finance, law, and advertising. . current account balance; goods, services, international income flows, and foreign aid. . current trade balance; finance, law, and software product design.

current account balance; goods, services, international income flows, and foreign aid

In the U.S., all companies involved in international flows of capital must file reports, which are ultimately compiled by the: A. Census Bureau. B. Department of the Treasury. C. Bureau of Economic Analysis. D. Department of Commerce.

department of the tresury

Which of the following countries suffered deep recessions as a result of pessimistic foreign investors moving their money to other countries? A. Russia, and Indonesia B. Thailand, Argentina and Malaysia C. North Korea and Malaysia D. South Korea and a and b

South korea and a and b

From an economic perspective, returns on foreign investment are included in the overall measure of trade because financial investments: can also be thought of as payments made by the government. . have expanded substantially in the U.S. over the last few decades. . are made by parties in the U.S. economy and foreign investors. . are a form of trade that takes place in the financial capital market.

are a form of trade that takes place in the financial capital market.

Which of the following terms is sometimes used to describe the balance of trade? balance of financial investment . balance of payments . balance of investment capital . balance of capital flows

balance of payments

The ________________ refers to the gap that can exist between what a nation's _____________, and a nation's ____________________. A. balance of trade; producers sell abroad; imports B. merchandise trade balance; exports; imports C. trade surplus; exported services; imported goods D. trade deficit; producers purchase abroad; exports

balance of trade; producers sell abroad; imports

Which of the following represents a financial inflow into the U.S. economy? foreign aid from the U.S. to Haiti . oil imports from Iraq . Canadian investors buying real estate in Arizona . South Korean car imports

canadian investors buying real estate in arizona

What is the most common method of measuring flows of trade? amount of physical items transported between countries . amount of manufactured items transported by truck . comparing annual amounts of goods and services exchanged between countries . comparing exports of goods, services, and financial capital between countries

comparing exports of goods, services and financial capital between countries

From a macroeconomic perspective, if GDP economic indicators show a decline of 10% or more in a single year, then which of the following outcomes is most likely to result? A. deep economic recession B. influx of foreign capital C. lessening of foreign aid D. merchandise trade surplus

deep economic recession

A government finds itself in the following situation: a government budget deficit of $900; total domestic savings of $2000, and total domestic physical capital investment of $1300. According to the national saving and investment identity, if investment increases by $200 while the government budget deficit decreases by $100 and savings remain the same, what will happen to the current account balance? current account becomes 0 . deficit decreases from $200 to $100 . deficit increases from $200 to $300 . deficit increases from $200 to $400

deficit increases from 200 to 300

One of the following must be used as a starting point in order to perform an analysis that will determine what the connections between imbalances of trade in goods and services and the flows of international financial capital are. Which one is it? A. sketch patterns of trade deficits B. sketch patterns of trade surpluses C. define the level of trade D. define the balance of trade

define the balance of trade

Trade surpluses and trade deficits can be _______ for an economy in certain circumstances. A. beneficial B. harmful C. either a or b D. neither a or b

either a or b

An economy with a larger involvement in foreign trade: has an underlying trade imbalance. . may measure its exports as a share of GDP. . is more likely to suffer a larger trade imbalance. . has a substantial trade imbalance.

is more likely to suffer a larger trade imbalance.

The extent to which a national economy is involved in global trade: A. is not very strongly related to the issue of whether the economy has a substantial trade imbalance. B. is not very strongly related to the underlying economic meaning of trade imbalances. C. is not very strongly related to either a or b above. D. is very strongly related to both a and b above.

is not very strongly related to either a or b above

If a country's current account balance is zero and the financial payments flowing in and out of the country's economy are equal, then which of the following must be a true statement? it has an overall or net outflow of financial investment . its government is not indebted to other governments . it has an overall or net inflow of financial investment . it is not an overall or a net investor in other countries

it is not an overall or a net investor in other countries

In most high-income economies, including the United States, goods currently make up ___________, while services currently compose ____________. A. more than half of total production; less than half of total production B. less than half of total production; more than half of total production C. the merchandise trade balance; the capital trade balance D. the merchandise trade balance; the retail trade balance

less than half of total production; more than half of total production

The statement that GDP = C + I + G + X - M is an identity, because ____________. A. trade surpluses can be either good or bad B. trade deficits can be either good or bad C. it is true according to the definition of GDP D. each trade is conducted on a voluntary basis

C

To a macroeconomist, a trade deficit is synonymous with which of the following? A. outflow of financial capital B. outflow of goods and services C. inflow of financial capital D. inflow of goods and services

C

Which of the following represents a financial outflow from the U.S. economy? A. U.S. computer exports to Poland B. returns paid on U.S. financial investment in Hong Kong C. U.S. investors buying foreign assets in Germany D. British investors buying real estate in Kentucky

C

Which of the following would most likely be included in the positive side of the U.S. current account balance? money spent by U.S. tourists in Europe . U.S. foreign aid sent to as disaster relief to Haiti . interest payments to foreign investors invested in the U.S. . money earned by U.S. firms in Europe

money earned by U.S firms in Europe

Which of the following would most likely be included in the negative side of the current account balance? A. money earned by Canadian firms in the U.S. B. money spent by Canadian tourists in the U.S. C. returns paid to U.S. investors in Southeast Asia D. European aid sent to the U.S. to fund the Iraq war

money earned by canadian firms in the U.S

The term ______ describes circumstances where a country's imports exceed its exports. A. trade imbalance B. trade balance C. trade surplus D. trade deficit

trade deficit

From a macroeconomic perspective, an economic transaction in the form of a financial investment is synonymous with which of the following? A. a productive economic asset B. trade resulting from unilateral transfers C. trade in the financial capital market D. a stream of payments leaving the country

trade in the financial capital market

The term ______ describes circumstances where a country's exports exceed its imports. trade surplus . trade balance . trade deficit . trade imbalance

trade surplus

A series of macroeconomic events has led an economy into a deep recession. Which of the following factors is most likely to have initiated this series of events? A. level of trade B. unbalanced trade C. deficit level of trade D. merchandize trade imbalance

unbalanced trade

In 2010, a country imported goods worth $500 billion and exported goods worth $443 billion. It exported services worth $248 billion and imported services worth $330 billion. Payments on investments abroad totaled $199 billion, while returns paid on foreign investments were $125 billion. Unilateral transfers from the country to other nations amounted to $94 billion. What was the country's current account deficit for 2010? A. $70 billion B. $159 billion C. $142 billion D. $65 billion

$159 billion

In 2010, the country of Vesey exported goods worth $312 billion and services worth $198 billion. It imported goods worth $525 billion and services worth $255 billion. It sent $1.2 billion in famine relief to Africa, and received $3 billion to support its first democratic election efforts. What was the merchandise trade deficit in Vesey in 2010? A. $213 billion B. $270 billion C. $57 billion D. $1.8 billion

$213 billion

A country's current national savings and investment identity is expressed in algebraic terms as (M - X) = I - S - (T - G). In this instance: A. domestic investment is higher than domestic savings. B. domestic savings exceed domestic investment. C. the country is experiencing a trade surplus. D. government savings are excluded.

A

A country's current national savings and investment identity is expressed in algebraic terms as X - M = S + (T - G) - I. In this instance: A. there is an inflow of capital investment from the rest of the world economy. B. there is no connection from domestic savings and investment to the trade balance. C. the trade balance is determined by performance of certain sectors of the economy. D. private and public domestic savings are higher than domestic investment.

D

Only one of the following statements about the trade surplus is correct. Which one is it? A. the government should always strive for a trade surplus and a healthy inflow of foreign capital B. the government generating a trade surplus is better than increasing foreign capital inflows C. increasing foreign capital investment is better than generating a trade surplus D. generating a trade surplus and an overall net inflow of capital is impossible

D

Goods and services produced in one country that are then sold in other countries are called ____________. A. exports B. tradeable items C. surplus items D. economic stimulants

Exports

Which of the following involves a financial outflow from the U.S. economy? Chinese investors buy real estate across the U.S. . South Korean investors buy firms in the U.S . returns paid on U.S. investments in France . U.S. firms buying logging rights to China's forests

U.S. firms buying logging rights to china's forests

If exports and imports: are equal, then the economy is unhealthy. . are equal, then trade is balanced. are imbalanced, then a trade surplus exists. . are imbalanced, then a trade deficit exits.

are equal, then trade is balanced.

If imports ______________, then the economy is said to have a trade deficit. A. precede exports B. follow exports C. equal exports D. exceed exports

exceed exports

If exports ______________, then the economy is said to have a trade surplus. A. equal imports B. exceed imports C. precede imports D. follow imports

exceed imports

With respect to the national saving and investment identity for any country, the quantity of ________ at any given time by savings must _______ for purposes of making investments. A. foreign aid supplied; be lower than the quantity of domestic aid demanded B. foreign financial capital imports; equal to supply of domestic capital available C. foreign capital imports; less than the supply of domestic capital available D. financial capital supplied; equal the quantity of capital financial demanded

financial capital supplied; equal the quantity of capital financial demanded

A country's current account balance refers to a broad measure of the balance of trade that includes: merchandise, services, and foreign capital investments. . goods, foreign capital investments, exported domestic services. . goods and services, international flows of income, and foreign aid. . merchandise, foreign aid and imported domestic services.

goods and services, international flow of income, and foreign aid

At the outset of the 21st century, most global trade took the form of: A. services, rather than goods. B. goods, rather than services. C. equal trade in goods and services. D. trade surpluses in the service sector.

goods, rather than services

The term __________ is used to describe what those in one country buy from those in other countries. A. exports B. imports C. trade D. surplus

imports

In 2009, because U.S. imports were $2,535 billion while exports were $2,116 billion: exports exceeded imports by a sizeable $419 billion. . there was a huge influx of foreign capital into the U.S. economy. . imports exceeded exports by a sizeable $419 billion. . government policy caused a lessening of foreign aid.

imports exceeded exports by a sizeable 419 billion

The surge in international trade related to services to be performed in one country and sold in another that began in the 1990s has been powered by which of the following? A. technological advances B. telecommunications C. computers D. customer service, finance, law

technological advances

The term "merchandise trade balance" is used to describe: the balance of trade in services. . the level of trade in goods. . the balance of trade in goods. . the level of trade in services.

the balance of trade in goods

Assume that the level of domestic investment in a country rises, while the level of private and public saving remains unchanged. In these circumstances: the rise in domestic investment will mean a higher trade surplus. . the trade deficit will decline sharply. . the rise in domestic investment will mean a higher trade deficit. . government borrowing will increase sharply.

the rise in domestic investment will mean a higher trade deficit

Which of the following accurately reflects the pattern of the U.S. current account balance during the periods: 1991; the late 1990s through to the mid-2000s; and 2009 following the onset of recession? larger deficit; tiny surplus; surplus declined . larger deficit; surplus declined; tiny deficit . tiny surplus; larger deficit; deficit declined . surplus declined; larger deficit; tiny surplus

tiny surplus; larger deficit; deficit declined

Why would an analyst include, among other things, airplane parts, legal services and software, in an analysis of international economic trade? A. to determine the merchandise trade balance B. to determine the balance of trade in services C. to determine the current account balance D. to determine the international flow of income

to determine the current account balance

A recession tends to make a _____________________. A. trade surplus smaller B. trade deficit smaller C. trade deficit larger D. both a and b above

B

In 2010, a small country imported goods worth $500 billion and exported goods worth $443 billion. It exported services worth $248 billion and imported services worth $330 billion. Payments on investments abroad totaled $199 billion, while returns paid on foreign investments were $125 billion. Unilateral transfers from the country to other nations amounted to $94 billion. What was the country's merchandise trade deficit for 2010? $70 billion . $65 billion . $154 billion . $57 billion

57 billion

One of the questions on Anders' economics exam provided him with the algebraic term: I + (G - T) = S + (M - X) and asked him to choose its matching written identity. Of the following possible answers presented on the exam, which one is the correct choice? A. Demand for financial capital = Supply of financial capital B. Investment + government savings = Supply + trade surplus C. Trade surplus + government savings = Supply + trade deficit D. Domestic investment + public savings = Domestic savings + trade deficit

A

When some countries increase their imports as a result of worldwide economic growth, other countries must be increasing their: A. exports as demand in all countries substantially rises. B. trade deficits since all of their imports significantly rise. C. trade surplus since all of their exports gradually rise. D. imports, but their trade deficits gradually decrease.

A

Which of the following will strongly influence a nation's level of trade? A. size of its economy, its geographic location, and its history of trade B. size of its government, its history of trade, and its geographic location C. government trade policy, its history of trade, and the size of its economy D. ratio of exports to GDP, balance of trade, and government trade policy

A

The two main sources for the supply of capital in the U.S. economy are: A. private sector investment and government borrowing when spending is higher than tax revenues. B. domestic savings from individuals and firms and inflows of financial capital from foreign investors. C. domestic savings from individuals and firms and government borrowing to make up a tax shortfall. D. domestic private sector borrowing and inflows of financial capital from foreign investors.

B

Only one of the following statements about trade surplus and capital flow is correct. Which one is it? a trade surplus exists if there is a net outflow of capital excluding foreign borrowing and lending . a trade surplus means that there is a net inflow of capital . a trade surplus exists if there is a net inflow of capital excluding foreign borrowing and lending . a trade surplus means that there is a net outflow of capital

a trade surplus means that there is a net outflow of capital

The final category of the current account balance is _________, which can be thought of as payments made by individuals in which money is sent abroad ______________. exports of goods; can cause a merchandise trade deficit . trade in services; by domestic financial firms are treated like imports . unilateral transfers; without any direct good or service being received . income payments; and the returns are received from abroad

unilateral transfers; without any direct good or service being received