Question

11. Which of the following is true? A) A current account deficit occur when domestic investment is greater than national savings. B) Loans from abroad add to a country’s stock of external debt and generate debt service. C) All countries have external debts in the world. D) all of the above.

12. Whenever a country’s GNP exceeds its domestic absorption (= C + I + G), it must be true that A) this country’s financial account is in surplus. B) this country’s capital account is in surplus. C) this country’s current account is in surplus. D) this country’s GNP must be greater than GDP.

13. Given that personal consumption is $100, national saving is $15, net taxes are $10, government purchases are $12, the country’s GNP is A) $115. B) $125. C) $127. D) $130.

14. Given that the capital account balance is zero, statistical discrepancy is zero, and the financial account balance is $500, it must be true that A) this country ran a current account surplus of $500. B) this country has a net international borrowing of $500. C) this country’s financial account is in deficit D) this country’s external debt declined.

Answer 1

11. A) A current account deficit occur when a country is importing more than it is exporting. so this staetment is false.

B) External debt involves money borrowed from a source outside the country. So, yes we can undoubtedly say that loans from abroad add to a country's external debt and do add debt service. This statement is true.

C) All countries do not compulsarily have external debts. There are few countries out there which do not have external debts for eg. Brunei, Palau, Leichtenstein. So this statement can't be true.

Therefore all the statements except B) option are false. So, correct response will be option B)