Chapter 3 Practice

What is the correct label for the vertical axis in the J-curve?

Change in the Trade Balance

The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity to solve for the statistical discrepancy. The statistical discrepancy = (BCA + BKA) − BRA The statistical discrepancy = BCA − BKA + BRA The statistical discrepancy = BCA − BKA − BRA The statistical discrepancy = BCA + BKA + BRA

The statistical discrepancy = BCA + BKA + BRA

A country experiencing a significant balance-of-payments surplus would be likely to

expand imports, offering marketing opportunities for foreign enterprises, and refrain from imposing foreign exchange restrictions.

Currently, international reserve assets are comprised of

gold, foreign exchanges, special drawing rights (SDRs), and reserve positions in the International Monetary Fund (IMF).

As of 2011, gold accounted for

less than one percent of the total reserve assets held by IMF member countries.

Assume that the balance-of-payments accounts for a country are recorded correctly. Balance on the current account = BCA = $130 billion Balance on the capital account = BKA = −$86 billion Balance on the reserves account = BRA =? The balance on the reserves account (BRA), under the pure flexible exchange regime is −$44 billion. $44 billion. $216 billion. none of the options

none of the options

If Japan exports more than it imports, then the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus. one can infer that the yen would be likely to appreciate against other currencies. the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus, and one can infer that the yen would be likely to appreciate against other currencies. none of the options

one can infer that the yen would be likely to appreciate against other currencies.

In the short run a currency depreciation can make a trade balance worse if there is no domestic producer of an import. there is no domestic buyer for an import. there is no export market for a country's output. none of the options

there is no domestic producer of an import

Regarding the statistical discrepancy in the balance-of-payments accounts, there is some evidence that financial transactions may be mainly responsible for the discrepancy. the sum of the balance on the capital account and the statistical discrepancy is very close to the balance of the current account in magnitude. it tends to be positive one year and negative in others, so it's safe to ignore it. there is some evidence that financial transactions may be mainly responsible for the discrepancy, and the sum of the balance on the capital account and the statistical discrepancy is very close to the balance of the current account in magnitude.

there is some evidence that financial transactions may be mainly responsible for the discrepancy, and the sum of the balance on the capital account and the statistical discrepancy is very close to the balance of the current account in magnitude.

Foreign direct investment (FDI) occurs

when an investor acquires a measure of control of a foreign business and when there is an acquisition, by a foreign entity in the U.S., of 10 percent or more of the voting shares of a business.

Generally speaking, any transaction that results in a receipt from foreigners

will be recorded as a credit, with a positive sign, in the U.S. balance of payments.