Question

Use the information in the following table to answer questions 1 through 4:

Exports of goods & services: $1000

Imports of goods & services: $1200

Net change in assets owned abroad: $100

Net change in foreign owned assets at home: $360

Unilateral transfers received: $130

Unilateral transfers paid: $200

Investment income paid to foreigners: $380

Investment income received from foreigners: $400

Balance on the capital account: $0

Statistical Discrepancies: $0

1. The balance on the current account is _________.

A) $150

B) $200

C) -$230

D) - $250

2. The balance on the financial account is _________.

A) -$200.

B) -$220.

C) $240.

D) $260.

3. The statistical discrepancy is

A) -$5.

B) -$10.

C) $5.

D) $10.

4. From the domestic economy’s perspective,

A) there is a net international capital outflow equal to $200.

B) there is a net international capital inflow equal to $260.

C) its domestic absorption is less than its GNP by 150

D) its domestic absorption exceeds its GNP by $200.

5. If a country runs a current account surplus and national private savings equals domestic investment, then the combined governmental accounts must be ________.

A) balanced

B) in deficit

C) in surplus

D) could be either negative or positive, depending on the capital account.

6. For an economy, if its national saving is greater than its domestic investment, then which of the

following is true?

A) this economy must have a current account surplus.

B) this economy must have a financial account surplus.

C) this economy’s government budget must be in surplus.

D) all of the above.

7. The current account balance of the United States began to deteriorate in

A) the late 1960s.

B) the early 1970s.

C) the early 1980s.

D) the late 1980s.

8. The difference between GNP and GDP is

A) GNP includes income received from abroad and excludes income paid abroad.

B) GNP excludes income received from abroad and includes income paid abroad.

C) GNP includes exports and imports.

D) GNP excludes exports and imports.

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9. If there is no statistical discrepancy and if there is zero capital account balance, a current account

deficit must imply that

A) the financial account is is deficit.

B) the financial account is in surplus.

C) exports of goods and services exceed imports of goods and services.

D) unilateral transfers are positive.

10. If an economy’s current account is in deficit, then it is true that __________.

A) its national saving finances the purchase of domestic goods by foreign countries

B) its national saving exceeds its domestic investment

C) this economy lends to foreign countries

D) this economy has a net capital outflow

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.

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15. All else equal, an ongoing increase in government budget deficits must

decrease

A) the current account deficit.

B) the financial account surplus.

C) the capital account surplus.

D) the national saving.

Answer 1

Answering only first four MCQ are compulsory.

Q1) option D

balance on current account=

Net exports of goods & services+ net unilateral transfers + income receipts - income payment

1000-1200 +130-200+ 400-380 = -250

Q2) option D

Balance on financial account =

Net change in foreign owned assets at home - Net change in assets owned abroad

= 360-100 = 260

Q3) option B

As forBOP , balance on current + financial + capital account = 0

But -250 + 260+ 0 = 10

Thus statistical discrepancy = -10, the value by which sum total of current, financial, capital account is off the zero. ( With reversal of signs)

Q4) option B)

foreign purchase of domestic assets - country purchase of domestic assets

= 360-100 = 260