Question

21. Typically, a country’s balance of payment identity is referred to as __________. A) National Saving - Domestic Investment = 0 B) Current Account + Financial Account + Capital Account + Statistical Discrepancy = 0 C) Current Account + Financial Account + National Saving + Statistical Discrepancy = 0 D) Net Exports + Net International Investment Income + Statistical Discrepancy = 0 22. A country sees a net international capital inflow if ____________________. A. its current account is in deficit B. its financial account is in surplus C. the country is a net international borrower D. all of the above 23. If a country runs a financial account surplus, it means that __________________________. A) this country’s asset imports exceed its asset exports B) this country’s international debt accumulates C) this country is a net international lender D) all of the above 24. A country’s international debt must increase if ___________________________. A) its current account is in deficit B) its financial account is in deficit C) its international merchandise trade is in deficit D) all of the above 25. For the US to decrease its current account deficits, which of the following should be workable? A) policies designed to cut government budget deficits and promote national savings B) policies designed to cut domestic investment C) policies designed to tax imported goods D) policies designed to protect domestic infant industries

Answer 1

21. Typically, a country’s balance of payment identity is referred to as __________.

B) Current Account + Financial Account + Capital Account + Statistical Discrepancy = 0

because balance of payments is always in balance

22. 22. A country sees a net international capital inflow if ____________________.

A. its current account is in deficit (correct. when current account is in deficit, then that capital and financial and capital account are in surplus)

B. its financial account is in surplus (correct. this means there is a net inflow of direct and portfolio investment)

C. the country is a net international borrower (correct. if the country is borrowing loans from another country that means the capital account is in surplus)

D. all of the above

hence, option D is correct.

23. If a country runs a financial account surplus, it means that __________________________.

B) this country’s international debt accumulates. (correct. because financial account deals with the claims of foreign individuals and investments. positive financial account means the accumulation of the country's financial account surplus.)

24. A country’s international debt must increase if ___________________________.

A) its current account is in deficit ( correct. because current account deficit means capital and financial account surplus. if the current account is in deficit then there is a shortage in the foreign currency in the home market hence credit must come in hence international debt must increase)

25. For the US to decrease its current account deficits, which of the following should be workable?

C) policies designed to tax imported goods. ( correct. because taxing import will discourage import and net export will increase. hence current account deficit will go down)

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