Balance of Payments 2

What would be recorded in the financial account of India’s balance of payments?

• An Indian steel manufacturer buys insurance for its factories from a firm in Europe.

• An Indian steel manufacturer employs foreign workers in its Indian factories.

• An Indian steel manufacturer receives profits from its factories in Europe.

• An Indian steel manufacturer supplies investment for a new factory in Europe.

A small country imports tractors. The government of this country decides to impose a quota on

imported tractors.

What is likely to be the effect on the price of imported tractors and domestic output of tractors?

• A

• B

• C

• D

As part of its trade policy, a government subsidises the cost of machinery used to manufacture

goods for export.

How will this affect the balance of payments?

• decrease the deficit on the capital account

• decrease the deficit on the current account

• increase the deficit on the capital account

• increase the deficit on the current account

The figures shown are from New Zealand’s balance of payments for 2017 according to data

published by Stats NZ in September 2018.

What was the value of the balancing item (net errors and omissions) in NZ$m?

• –3900

• –2000

• –1900

• 5700

Between 2011 and 2013, retailers reported that expenditure on domestically-produced and

imported goods had reduced. This was because consumers did not take out loans as the

economy was in a recession. What is the likely result of this?

• a decline in the deficit in the trade account

• a decline in the level of savings

• a decline in the terms of trade

• a decline in unemployment

Which policy aimed at correcting a balance of trade deficit is an expenditure-reducing policy?

• depreciation of the currency

• increased direct taxation

• tax incentives for exporters

• the imposition of protectionist tariffs

What may increase the benefits a country gains from international trade?

• a reduction in transportation costs because of a fall in world oil prices

• domestic wage rates increase at a faster rate than output per worker

• the domestic labour force becomes more occupationally immobile

• trading partners increase tariffs on imported goods

The world trade price of cars in country Y is US$10 000. At this price domestic car producers

supply 100 000 cars to the market and domestic consumers purchase 200 000 cars. The

government of country Y imposes a 10% tariff on imported cars.

Under which conditions will this tariff raise the most revenue for the government?

• A

• B

• C

• D

Which statement about trade protection is correct?

• A tariff results in a greater decrease in demand for an import the lower is its price elasticity of

  demand.

• Embargoes are only an effective trade barrier when the demand for imports is price-elastic.

• Export subsidies to domestic firms will prevent the dumping of foreign products in the

  domestic market.

• Quotas are less effective than tariffs for raising government revenue.