Question

MODULE 43 BALANCE OF PAYMENTS ACCOUNTING

1.         A surplus in the current account means there will be:

A.a surplus in the financial account.

B.a deficit in the financial account.

C.a balanced financial account.

D.either a surplus or a deficit in the financial account.

2.         When there is a deficit in the U.S. current account, we pay for the difference by:

A.allowing the dollar to appreciate.

B.allowing the dollar to depreciate.

C.buying assets from other countries.

D.selling assets to other countries.

3.         Suppose that a family from New York City eats in a restaurant in Mexico City. This transaction would appear in the _______ of the U.S., and it would be entered as a(n) ______.

A.Current account; import of a service

B.Current account; export of a service

C.Financial account; foreigner’s purchase of a domestic asset.

D.Financial account; American’s purchase of a foreign asset.

4.         Suppose that a Peruvian financial investor purchases a sporting goods store in Colorado. This transaction would appear in the ______ of the U.S., and it would be entered as a ______.

A.Current account; import of a service

B.Current account; export of a service

C.Financial account; foreigner’s purchase of a domestic asset.

D.Financial account; American’s purchase of a foreign asset.

Answer 1

1. A surplus in the current account means there will be: deficit in the financial account.

A current account surplus means an economy is exporting a greater value of goods and services than it is importing. A country with a current account surplus will have a deficit on the financial/capital account. i.e. a country with a current account surplus will have surplus foreign exchange it can use to invest in other countries.

2.         When there is a deficit in the U.S. current account, we pay for the difference by:allowing the dollar to appreciate

A country can reduce its current account deficit by increasing the value of its exports relative to the value of imports.

3.         Suppose that a family from New York City eats in a restaurant in Mexico City. This transaction would appear in the __Current account_____ of the U.S., and it would be entered as a(n) _import of a service_____.

4.         Suppose that a Peruvian financial investor purchases a sporting goods store in Colorado. This transaction would appear in the ___Financial account___ of the U.S., and it would be entered as a foreigner’s purchase of a domestic asset.