Chapter 5 - Balance of Payments

Chapter 5Balance of Payments

Multiple Choice

What is the record of all the transactions between one country and rest of the world called?

• Balance of Trade

• Balance of Transactions

• Budget

• Balance of Payments

1. Current Account

2. Capital/Financial Account

​

​The Balance of Payments has two sections:

Multiple Choice

This account records a nation's imports and exports of goods, services, and primary/secondary incomes.

• Current Account

• Financial/Capital Account

Multiple Choice

This account records flows of money from the purchase and sale of real estate and financial assets between countries.

• Current Account

• Financial/Capital Account

Multiple Choice

Imports involve

• Goods in, money in, positive in Current Account

• Goods in, money out, negative in Current Account

• Goods in, money in, positive in Financial Account

• Goods in, money out, negative in Financial Account

Multiple Choice

Exports involve

• Goods out, money out, positive in Current Account

• Goods out, money in, positive in Current Account

• Goods out, money in, positive in Financial Account

• Goods out, money out, negative in Current Account

Multiple Choice

Irish exports cause money to ...

• leave Ireland

• enter Ireland

Multiple Choice

Irish imports cause money to ...

• leave Ireland

• enter Ireland

Multiple Choice

When exports < imports...

• Current Account Surplus

• Current Account Deficit

Multiple Choice

When exports > imports...

• Current Account Surplus

• Current Account Deficit

Multiple Choice

If the Uk has a current account deficit with Germany, what is Germany's current account status? Remember...trade between both countries must net to zero.

• surplus

• deficit

• none of the above

Multiple Choice

If the Uk has a current account surplus with Spain, what is Spain's current account status? Remember...trade between both countries must net to zero.

• deficit

• surplus

• none of the above

Multiple Choice

An Italian tourist paying for a night in a London hotel would appear on the UK balance of payments:

• In the Current Account

• In the Capital/Financial Account

Multiple Choice

Leroy Jenkins buys stock in a Japanese video game company. This transaction would be recorded on the US balance of payments as

• Current Account

• Financial/Capital Account

Multiple Choice

Big Dave, a UK citizen, buys a villa in France. This would be registered on:

• The Balance of Trade in Goods

• The Balance of Trade in Services

• The Capital/Financial Account

Multiple Choice

Balance of trade is a measure of...

• Difference between visible exports and visible imports

• Difference between invisible exports and invisible imports

• Difference between all import and all export

Multiple Choice

Foreign trade consists of visible (physical goods, both primary and secondary) and invisible trade (services).

• True

• False

Multiple Choice

Balance of trade is a part of

• Current account BOP

• Capital account BOP

• Official reserves account

• None of these

Multiple Choice

A Ford motor vehicle brought into the Bahamas from the U.S.

• Invisible import for the U.S.

• Visible export for the Bahamas

• Invisible export for the U.S.

• Visible import for the Bahamas

Multiple Choice

A British man renting a guest room in the Bahamas.

• Visible imports for the UK

• Invisible imports for the UK

• Visible exports for the Bahamas

• Invisible export for the Bahamas

Multiple Select

What is a possible reason for a current account deficit?

• Poorer quality goods produced versus rest of the world

• More expensive goods produced versus rest of the world

• Higher inflation versus the rest of the world

• Stronger currency versus the rest of the world

Multiple Choice

A deficit on the current account of the balance of payments

• puts upward pressure on the exchange rate (more foreigners want your currency)

• puts downward pressure on the exchange rate (less foreigners want your currency)

• puts either upward pressure or a downward pressure on the exchange rate

• does not affect the exchange

• Leakages from the economy (money flows out of your country)

• Inflation may flow into your country from abroad

• Nobody wants what you are producing

• May need to go into debt to another country

Current Account Deficit Negatives

• A developing country may use the deficit to buy capital goods and build up their economy (new factories, new buildings, new machinery)

• Your exchange rate will be weaker, which will make your exports cheaper

​​Current Account Deficit Positives

Reorder

How do exports pay for imports? Put the choices in the correct order.

• Businesses in the U.S. sell their goods to consumers/businesses in other countries.

• Businesses use the income from the exports to pay their workers.

• Workers in the U.S. use their wages to buy imported goods.

1

2

3

• 1
• 2
• 3