Question

1.When private savings is less than private investment, we will see a

	A.	Capital account surplus
	B.	Current account surplus
	C.	Cannot tell
	D.	Current account deficit

2.Over the past year, the South African Rand has depreciated against the U.S. dollar by 5%. Furthermore, the inflation in the U.S. was at 4% over the year while the inflation in South Africa stood at 7% over the year.

	A.	The U.S. exporters to South Africa have lost their competitive advantage relative to the local firms by about 2%.
	B.	The U.S. exporters to South Africa have lost their competitive advantage relative to the local firms by about 3%.
	C.	The U.S. exporters to South Africa have gained a competitive advantage relative to the local firms by about 3%.
	D.	The U.S. exporters to South Africa have gained a competitive advantage relative to the local firms by about 2%. 3.Which of the following is NOT an item to be considered in Balance of Payment (BOP) calculations? A. An Australian-based company manages the development of an oil field in Kazakhstan. B. A consumer buys a VCR made in Korea from a Melbourne department store. C. Purchase of an Australian Treasury Bond by a foreign resident. D. An Australian citizen living in Brisbane travels to Singapore and buys a camera.

Answer 1

Answers-

Q 1)

The correct Option is C. cannot tell

(S – I) = (G – T) + (X – M)

The sectoral balances says that total private savings (S) minus private investment (I) has to equal the public deficit (spending, G minus taxes, T) plus net exports (exports (X) minus imports (M)), where net exports represent the net savings of non-residents.

Domestic savings is less than domestic investment then it is Current account deficit.

Q 2)

The correct Option is D. The U.S. exporters to South Africa have gained a competitive advantage relative to the local firms by about 2%.

As the Rand has depreciated by 5 % and it is observed that the inflation difference is 3 % and the rand is supposed to depreciate by 3 % but it has depreciated by 5 % which is 2 % more.

The other Options are incorrect.

Q 3)

The correct Option is B. A  consumer buys a VCR made in Korea from a Melbourne department store.

The other Options A,C and D are all condidered in Balane of Payments ( BOP) calculations.