Econ 001 Chapter 23

The table shows the amounts, in millions of dollars, of balances of various current account components. Use the information in the table to calculate the current account balance for Year 5: Year 5 Goods $7908 Services $6957 Income Payments $3734 Unilateral Transfers−$4638

$13961 million The current account balance is the summation of the four main components (all of which are included as columns in the table) of the current account. Therefore: Year 5 current account balance = $7908+$6957+$3734+(−$4638) Year 5 current account balance= $13961 million

The table shows the amounts, in millions of dollars, of balances of various current account components. Using the information in the table, what is the amount (in millions of dollars) of unilateral transfers for Year 2? Year 2 Goods −$292 Services $1434 Income Payments $418 Unilateral Transfers (Blank) Current Account Balance $1160

-400 million The current account balance is the summation of the four main components (all of which are included as columns in the table) of the current account. Therefore: For Year 2 : −$292 + $1434 + 418 + Unilateral Transfers = $1160 For Year 2: $1560 + Unilateral Transfers = $1160 Unilateral Transfers for Year 2 = $1160 - $1560 Unilateral Transfers for Year 2 = −$400 million

Which of the following best represents a nation experiencing a trade deficit? A nation with an economy that is experiencing a net outflow of financial capital. A nation with an economy that is experiencing a net inflow of financial capital. A nation with domestic investors receiving extra capital that they invest abroad. A nation with foreign investors choosing to hold their funds in their home countries.

A nation with an economy that is experiencing a net inflow of financial capital.

All of the following statements are true, except: During periods when an economy is running trade deficits, it cannot stop the flight of capital if foreign investors to decide to extract their capital from that economy. There is no economic merit in a policy of abstaining from participation in financial capital markets. Flows of international trade are the same as flows of international financial capital. As a rule, trade deficits are considered harmful and should be avoided at all costs.

As a rule, trade deficits are considered harmful and should be avoided at all costs.

Military assistance from the U.S. government falls under a special category and is not considered part of the unilateral transfers category of the current account. True or False

False

When a nation experiences a rising trade deficit, it likely leads to a decrease of net inflow of foreign financial capital. True False

False

A positive net capital outflow means financial capital is in deficit. True False

False

During a trade deficit domestic capital leaves a nation's economy to be invested abroad. Select the correct answer below: True False

False

If during an economic boom, the increase in private domestic investment is more than the total increase in public and private savings, a nation with a trade deficit will experience a decrease in that trade deficit. True or False

False

Which of the following statements is true? The U.S. economy recorded large trade surpluses in the 1980s to the 2000s. Countries that have high levels of trade always have trade deficits because they import a lot of goods and services. Countries that have high levels of trade always have trade surpluses because they export a lot of goods and services. It is possible for a country to record a large trade deficit despite having a relatively low level of trade, expressed as a percentage of GDP.

It is possible for a country to record a large trade deficit despite having a relatively low level of trade, expressed as a percentage of GDP.

Which of the following best represents nation A experiencing a trade surplus? Nation A's economy is experiencing a net outflow of financial capital. Nation A's economy is experiencing a net inflow of financial capital. Domestic investors of nation A are choosing to hold their funds domestically. Foreign investors are choosing to hold their funds in their home countries, rather than invest in nation A.

Nation A's economy is experiencing a net outflow of financial capital.

Which of the following fall into the category of unilateral transfers? Payments for goods imported from fair-trade economies. Payments sent from Cuban Americans to relatives in Cuba. Money sent to Africa by the Bill and Melinda Gates Foundation to fight polio. Payments for goods exported to countries within a trade bloc.

Payments sent from Cuban Americans to relatives in Cuba. Money sent to Africa by the Bill and Melinda Gates Foundation to fight polio.

All of the following statements about the U.S. balance of trade since 1971 are true, except: Select the correct answer below: Starting in the 1980s, the U.S. trade deficit increased rapidly. The current account U.S. trade deficit grew larger in the late 1990s and into the mid-2000s. The U.S. trade deficit declined in 2009 after the recession. The U.S. has not experienced a trade surplus since 1971.

The U.S. has not experienced a trade surplus since 1971.

Which of the following best describes a nation experiencing a current account surplus? Select all that apply: The nation has an inflow of financial investment capital from abroad. The nation is considered a net borrower from the rest of the world. The nation is considered a net lender to the rest of the world. The nation has domestic investors who are sending their funds abroad.

The nation is considered a net lender to the rest of the world. The nation has domestic investors who are sending their funds abroad.

All of the following statements are true, except: The U.S. economy has consistently run trade deficits in recent years. The share of U.S. exports in proportion to the U.S. economy is well above the global average. Most countries that have trade surpluses or deficits that are less than 5% of GDP. The exports of goods and services as a percentage of GDP can be used to measure a nation's level of globalization.

The share of U.S. exports in proportion to the U.S. economy is well above the global average.

A trade surplus implies that the economy is probably a net lender to the rest of the world. True or false

True

An increase in the trade surplus is considered a good thing for domestic producers. True or False

True

During a trade surplus, domestic investors use capital to purchase foreign assets expecting to sell them later on. True or false

True

For about two decades prior to 1980s, the U.S. economy experienced modest trade surpluses. True or False

True

Income payments refer to money flowing into and out of a country. True or false

True

The balance of payments is an account of a nation's foreign economic transactions. Select the correct answer below: True False

True

True or false? It is possible for a country to record a large trade deficit despite having a relatively low level of trade, expressed as a percentage of GDP. Select the correct answer below: True False

True

When the trade balance is equal to zero, it means that: a nation is a net borrower a nation is neither a net borrower nor lender a nation is a net lender financial outflows are greater than financial inflows

a nation is neither a net borrower nor lender

When a country's purchases of foreign assets is greater than foreign purchases of domestic assets, the country is ______________________. a net lender a net borrower is experiencing a trade deficit none of the above

a net lender

An increase in the trade deficit is associated with __________________________. Select the correct answer below: a decrease in demand for foreign capital an increase in international borrowing a situation where the quantity demanded of financial capital from foreign investors equals the quantity demanded of financial capital from domestic investors none of the above

an increase in international borrowing

Which of the following factors influence a country's level of trade? the level of domestic private saving the level of domestic public saving its history of trade the size of its trading partners

its history of trade

A current account deficit means that _________________________. there is an outflow of financial investment capital from abroad the country is a net borrower from the rest of the world the country is a net lender to the rest of the world domestic investors are putting their funds abroad

the country is a net borrower from the rest of the world

Which of the following best defines the balance of trade? Select the correct answer below: the gap between a nation's dollar value of its exports and a nation's dollar value of imports the difference in GDP between two nations how willing a nation is willing to trade with the international community all of the above

the gap between a nation's dollar value of its exports and a nation's dollar value of imports

Which of the following best describes the results when a nation's current account balance is negative? the trade balance is zero the nation is a net lender the nation is neither a net borrower nor lender the nation is a net borrower

the nation is a net borrower

In a period of trade deficit, if domestic investment rises by $1 billion, private savings increases by $220 million, and public savings decreases by $220 million, ____________________. the trade deficit will remain unchanged the trade deficit will decrease there will be a trade surplus the trade deficit will increase

the trade deficit will increase