Balance of Payments Quiz

What is the balance of payments a record of?

• All financial transactions within a country

• All financial transactions made between consumers, firms, and the government of one country with other countries

• Only imports and exports

• Only government transactions

What does the capital account involve?

• Transfers of ownership of fixed assets

• Only cash transfers

• Only trade in goods

• Only income transfers

What is included in the financial account?

• Only direct investment

• Only portfolio investment

• Direct investment, portfolio investment, and reserve assets

• Only reserve assets

What is a limitation for Eurozone countries in addressing current account deficits?

• They cannot increase taxes

• They cannot devalue the currency

• They cannot decrease imports

• They cannot increase exports

How does economic growth affect imports?

• Decreases demand for imports

• Increases demand for imports

• Has no effect on imports

• Balances import demand

What effect does increased international competitiveness have on exports?

• Decreases exports

• Increases exports

• No effect on exports

• Balances exports

What does a current account surplus indicate?

• A capital and financial account deficit

• A balanced economy

• A trade deficit

• A decrease in exports

What could cause a capital account surplus?

• Decrease in foreign investments

• Incoming finance from investors buying bonds and securities

• Increase in domestic spending

• Reduction in exports

What might a bank do if there is a current account deficit?

• Increase interest rates

• Lower interest rates

• Increase taxes

• Strengthen the currency

What is a potential effect of increased spending on education and training?

• Immediate increase in monopolies

• Decrease in productivity

• Increase in international competitiveness

• Reduction in investor interest