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Exam 3: The Balance of Payments

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Question 41

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A country experiencing a serious trade deficit is not as likely to expand imports as it would be if running a surplus.

A) True
B) False

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Question 42

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Countries occasionally intentionally devalue their currencies.So what is the logic and likely results of intentionally devaluing their domestic currency? International economic analysis characterizes the trade balance adjustment process as occurring in three stages.List and explain the three stages too.

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International economic analysis characte...

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Question 43

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Over the last two decades the surplus on U.S.services trade has typically been ________ the deficit on U.S.goods trade.

An increase in GDP should lead to a decrease in imports.

Like a balance sheet,the Balance of Payments adds up the value of all assets and liabilities of a country on a specific date.

Which of the following is NOT likely to occur in the quantity adjustment phase of the J-Curve adjustment path?

The ________ of the balance of payments measures all international economic transactions of financial assets.

Portfolio investment is capital invested in activities that are ________ rather than made for ________.

Which of the following is NOT a part of the Current Account of BOP?

Which of the following is NOT a major subaccount of the Balance of Payments?

In 2010 the United States posted a current account deficit of -$471 billion.The bulk of the negative value came from:

Under a floating exchange rate system,the government bears the responsibility to ensure that the BOP is near zero.

Under a fixed exchange rate system,the government bears the responsibility to ensure that the BOP is near zero.If the sum of the current and capital accounts do not approximate zero,the government is expected to intervene in the foreign exchange market by buying or selling official foreign exchange reserves.If the sum of the first two accounts is GREATER THAN ZERO,a ________ demand for the domestic currency exists in the world.To preserve the fixed exchange rate,the government must then intervene in the foreign exchange market and ________ domestic currency for foreign currencies or gold so as to bring the BOP back near zero.

Anaconda Copper Inc.created a subsidiary in Chile last year to mine copper ore.The proportion of net income paid back to the parent company as a dividend would be recorded in the current account subcategory of:

A country's overall level of interest rates should have an impact on the financial account of the BOP.Relatively low real interest rates should normally stimulate an outflow of capital seeking higher interest rates in other country currencies.

Under an international regime of fixed exchange rates,countries with a BOP ________ should consider ________ their currency while countries with a BOP ________ should consider ________ their currency.

The Bretton Woods era realized a great expansion of international trade in goods and services.

Consider the following: A foreign automobile company builds a manufacturing plant in Tennessee and European investors buy U.S.Treasury Bonds.

The BOP should always balance.

A country with a managed float that wishes to WEAKEN its currency may choose to raise domestic interest rates to attract additional capital from abroad.