APM Unit 6 Lesson

What does the balance of payments statement summarize?

• Economic transactions between the U.S. and other countries

• The U.S. federal budget

• Domestic economic activities

• State-level economic transactions

What is recorded in the current account of the balance of payments?

• Import and export of goods and services

• Flow of investments in real assets

• Official reserves

• Exchange rates

What indicates a deficit in the current account?

• More dollars are sent abroad than received

• More dollars are received than sent abroad

• Equal dollars are sent and received

• No dollars are sent abroad

What does a surplus in the capital account suggest?

• Foreign investment in the U.S. exceeds American investment abroad

• American investment abroad exceeds foreign investment in the U.S.

• Equal foreign and American investments

• No foreign investment in the U.S.

How does the Federal Reserve manage a balance of payments deficit?

• By adding foreign currencies to the official reserves

• By reducing foreign currencies in the official reserves

• By increasing domestic currency supply

• By decreasing domestic currency supply

What is the trade balance?

• The difference between the value of exports and imports

• The total value of exports

• The total value of imports

• The difference between domestic and foreign investments

What role do foreign exchange reserves play?

• Maintaining the stability of a country's currency

• Increasing domestic production

• Decreasing foreign investments

• Balancing the federal budget

What do exchange rates represent?

• The price of one currency in terms of another

• The value of goods in a foreign market

• The interest rate of a country's central bank

• The inflation rate of a country

What can lead to currency depreciation according to the passage?

• Increased preference for foreign goods

• High inflation rates

• Strong economic growth

• Central bank intervention

How does speculation affect currency markets?

• It can cause currency appreciation or depreciation

• It stabilizes exchange rates

• It reduces inflation

• It increases consumer demand