Question

1. On the balance-of-payments statements, merchandise imports are classified in the

a.

current account.

b.

capital account.

c.

unilateral transfer account.

d.

official settlements account.

2. Which balance-of-payments item does not directly enter into the calculation of the U.S. gross domestic product?

a.

merchandise imports

b.

shipping and transportation receipts

c.

direct foreign investment

d.

service exports

3. Which of the following is considered a capital inflow?

a.

a sale of U.S. financial assets to a foreign buyer

b.

a loan from a U.S. bank to a foreign borrower

c.

a purchase of foreign financial assets by a U.S. buyer

d.

a U.S. citizen's repayment of a loan from a foreign bank

4. Which of the following would call for an inflow of payments to the United States?

a.

American imports of German steel

b.

gold flowing out of the United States

c.

American unilateral transfers to less-developed countries

d.

American firms selling insurance to British shipping companies

5. Which of the following is classified as a credit in the U.S. balance-of-payments?

a.

U.S. exports

b.

U.S. gifts to other countries

c.

a flow of gold out of the U.S.

d.

foreign loans made by U.S. companies

6. If an American purchases a ticket from Scandinavian Airlines, paying by a personal check, which of the following entries would be the result?

a.

a credit in Norway's service account

b.

a debit in Norway's service account

c.

a credit in the U.S. unilateral transfers account

d.

a debit in the U.S. unilateral transfers account

7. If a resident of Japan purchases an insurance policy from the U.S. insurance company Progressive, which of the following entries would be the result?

a.

a debit in the U.S. service account

b.

a credit in the U.S. service account

c.

a credit in Japan's unilateral transfers account

d.

a debit in Japan's unilateral transfers account

8. A credit transaction would appear on the balance-of-payments as a result of

a.

the import of goods and services.

b.

domestic residents touring overseas.

c.

transfer payments made to foreign relatives.

d.

an inflow of investment capital.

9. A debit transaction would appear on the balance-of-payments as a result of

a.

outflows of investment capital.

b.

the export of services abroad.

c.

transfer payments received by domestic residents.

d.

the export of goods abroad.

10. The current account of the United States includes all of the following EXCEPT

a.

trade in goods and services.

b.

unilateral transfers.

c.

income receipts and payments.

d.

gold flows between the United States and foreign central banks.

Answer 1

Answer 1- The correct answer is A ie., Current Account. Current account is a part of Balance of trade which includes goods are services that are visible and not visible. The things that are visible are generally import and export of goods. While the part which is considered invisible includes services and transfers and income that is obtained from interest income, dividend income or profit earned. Another part of Balance of Trade is capital account.

Answer 2- The correct answer is A ie. Merchandise imports. Import means goods or services that are sold by a foreign country and hence purchased by the home country. Such goods or services are produced abroad. While calculating the government spending, only net exports are included, which is total exports minus total imports. Hence it can be concluded that imports are excluded from the calculation of GDP.

Answer 3- The correct answer is A - Sale of US financial assets to a foreign buyer. Capital flow means movement of capital assets from one location to another. In Balance of Trade capital account includes investments made, any foreign direct investments by a nation or even bank accounts that are held by NRI’s. Hence, sale of any asset or repayment of a loan taken would mean that the capital is flowimg out of the country and not considered as an inflow.

Answer 4- The correct answer is D ie., American firms selling insurance to British shipping companies. Inflow of payments means that money is cflowimg into the country. This can happen is a good is sold abroad and hence if the firms in US sell their insurance policies to foreign companies then it clearly emphasises inflow of payments as the foreign companies would pay to the US firms for the insurance policies taken.