Question

1. NAFTA (USAMC) is an example of ________________.
a. A world trade organization
b. A regional trade agreement (RTA)
c. A general agreement on trade and tariffs
d. A world government
2. True of false. The textbook makes the argument that, under NAFTA, the Mexican economy has benefitted from an increase in capital-intensive manufacturing and in exports of such goods
a. True
b. False
3. Suppose that a nation runs a trade deficit with the world. Hence NX (net exports) are negative. As a result, the nation’s current account will also run a ______________.
a. Deficit
b. Surplus
c. Deficit and surplus
d. None of the above
4. True of false. When a nation runs a current account deficit, it will also run a capital and financial account surplus
a. True
b. False
5. According to your answer to true of false question 4 above, this means that a nation will ____________ from/to the rest of the world to finance its excess of ____________ over _____________.
a. Lend, income, spending
b. Borrow, spending, income
c. Borrow, deficits, tax collections
d. All of the above

Answer 1

Ans 1: c. A general agreement on trade and tariffs (NAFTA is about free trade agreement between USA, Canada and Mexico).

Ans 2: False, Mexico specializes in labor intensive exports.

Ans 3: a. Deficit (Because net exports are in negative)

Ans 4: a. True (Because as per the identity of the balance of payment accounts, the deficit in one account is balanced out by surplus in other accounts such that the sum of Current Account balance,capital account and financial account balance comes to be zero).

Ans 5: b. Borrow, spending, income (The country will borrow from the rest of the world to finance its spending when spending is more than income. )