Quiz on Macroeconomic Issues - Balance of Trade

What does the balance of payments account summarize?

• The amount of foreign currency reserves

• The total income of a country

• Economic transactions between a country and the rest of the world

• The level of domestic inflation

What is a balance of trade deficit?

• When a country has no trade with others

• When the balance of payments is zero

• When import expenditure exceeds export revenue

• When export revenue exceeds import expenditure

Which of the following is a component of the current account?

• Goods balance

• Capital account

• Direct investment

• Official reserves

What happens to the balance of trade when a country's currency appreciates?

• Imports become cheaper for domestic consumers

• Exports become more expensive for foreign buyers

• Imports become more expensive for domestic consumers

• Exports become cheaper for foreign buyers

What is one consequence of a persistent balance of trade surplus?

• Increased economic growth

• Increased unemployment

• Decreased inflation

• Decreased export revenue

What does a current account surplus indicate?

• No trade with other countries

• Higher export revenue than import expenditure

• Balanced trade

• Higher import expenditure than export revenue

What is the impact of a balance of trade deficit on exchange rates?

• It stabilizes the currency

• It has no effect on exchange rates

• It leads to currency depreciation

• It leads to currency appreciation

Which of the following can cause a balance of trade deficit?

• Increased foreign investment

• Currency depreciation

• Higher inflation rates than trading partners

• Lower inflation rates than trading partners

What is the effect of rising real income on the balance of trade?

• It stabilizes the currency

• It has no effect on trade

• It increases import expenditure

• It decreases import expenditure

What is a potential consequence of a balance of trade surplus?

• Increased inflation

• Decreased purchasing power

• Decreased economic growth

• Increased unemployment