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1 Copyright © 2014 Pearson Education, Inc.International Monetary and Financial Economics (Daniels / Van Hoose) Chapter 1 Keeping Up with a Changing World-Trade Flows, Capital Flows and the Balance of Payments 1) Globalization includes which of the following ideas?

• increasing market integration
• the expansion of world governance and global society
• the increased mobility of peoples and information
• all of the above

Answer: D

2) International economic integration refers to

• the expansion of world governance and global society.
• the increased mobility of peoples and information.
• the strengthening of existing international linkages of commerce and the addition of new

linkages.

• the increasing of market integration.

Answer: C

3) When someone talks about "invisibles" with respect to globalization, they are referring to

• individuals left behind in the development process.
• the flow of funds that takes place behind the scenes.
• the increase of trade in services.
• the influence of government policies that is often not measurable.

Answer: C

4) The real sector of an economy refers to transactions in

• the production and sale of domestic goods and services.
• domestic financial assets.
• the production and sale of domestic and global goods and services.
• domestic and global financial assets.

Answer: C

5) International Economic Integration incorporates

• only real sector transactions.
• only financial sector transactions.
• both real and financial sector transactions.
• neither real nor financial sector transactions.

Answer: C

6) Which of the following best describes the way we account for trade in the U.S.?

• We include it as part of GDP.
• We use a single entry system similar to how we account for GDP.
• We use a double entry accounting system to measure the total value of our transactions with

the world.

• We use a double entry system that compares domestic transactions to foreign transactions.

Answer: C

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2 Copyright © 2014 Pearson Education, Inc.7) A debit entry in the balance of payments system could be from which of the following?

• a payment from abroad received by a domestic resident.
• a payment made while abroad by a domestic resident.
• a decrease in the current account deficit.
• an increase to the capital account surplus.

Answer: B

8) The balance on Merchandise Trade is found by looking at the

• current accounts
• capital accounts
• financial accounts
• Official Settlements Balance

Answer: A

9) When discussing the private capital account, asset flows include all but which one of the following?

• capital expenditures by domestic firms
• foreign securities purchased by domestic citizens
• changes in the balances of a bank's cash deposit from foreign transactions
• an investment in a foreign subsidiary by a domestic firm

Answer: A

10) The Official Settlements Balance is another way of describing

• the actual tabulation of reserve assets held by government central banks and treasuries.
• the net value of merchandise trade between two nations.
• the net foreign direct investment between two countries.
• the actual value in one currency of trade divided by the value in a second currency.

Answer: A

11) The ________ account is an account that keeps track of transfers or gifts between nations.

• unilateral transfers
• bilateral negotiations
• capital
• official settlements

Answer: A

12) Given the following information, what is the current account balance for this country?Merchandise trade balance = -300B, Services trade balance = +75B, unilateral transfers made in excess of those received = 60B

A)-165B.

B)-285B.

C)-315B.

D)-435B.

Answer: B 2 / 4

3 Copyright © 2014 Pearson Education, Inc.13) If the U.S. donated $56B worth of medicine to Uganda, the net effect on the ________ would be ________.

• unilateral transfers account, positive
• trade balance, negative
• trade balance, zero
• capital accounts, positive

Answer: C

14) Over the last twenty years, the U.S. has generally had a current account ________ and a capital account ________.

• surplus, surplus
• surplus, deficit
• deficit, surplus
• deficit, deficit

Answer: C

15) The United States can be called a net debtor nation. This means that

• the value of U.S. assets held abroad is worth less than the value of foreign assets held in the

U.S.

• the U.S. government owes more money than it takes in.
• the value of the U.S. currency is less than the value of currencies for our main trading

partners.

• the U.S. manufactures more goods abroad than it manufactures domestically.

Answer: A

16) Suppose you study abroad in England. When you purchase books and food, these transactions should really be recorded as

• credits to the capital account and debits to the current account.
• debits to the capital account and credits to the current account.
• debits to the capital account and debits to the current account.
• credits to the capital account and credits to the current account.

Answer: A

17) If domestic savings was 2 billion last year and domestic investment was -12 billion, then the current account balance is

• 10 billion.
• -10 billion.
• 14 billion.
• -24 billion.

Answer: C

18) If net capital flows were -28 billion and domestic investment was 17 billion, then the amount of domestic savings was

• -11 billion.
• 45 billion.
• 11 billion.
• -9 billion.

Answer: A 3 / 4

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19) When the media refers to the growing trade deficit in the United States

• it serves as a reminder to the government of the need to resolve this crisis.
• it means that the U.S. is increasingly exporting more than it is importing.
• it means that economic activity in the country is teetering on the brink of disaster.
• it really means nothing for the economy and suggests that U.S. consumers have more

consumption choices.

Answer: D

20) Domestic investment represents

• expenditures on capital goods and inventories.
• expenditures on residential construction.
• expenditures on industrial construction.
• all of the above.

Answer: D

21) A nation that has a stock of foreign financial assets that exceeds the stock of foreign-owned domestic assets is called a

• net creditor nation.
• net debtor nation.
• surplus nation.
• debtor nation.

Answer: A

22) The definition of a country that is called a ________ when its stock of foreign financial assets is greater than the foreign-owned holdings of domestic assets.

• net creditor
• net debtor
• surplus nation
• deficit nation

Answer: A

23) The United States is currently a net debtor nation. This means that

• U.S. consumers have a great variety of foreign goods available to them.
• the U.S. economy is in serious trouble if government policies don't change quickly.
• capital outflows from the U.S. are greater than inflows.
• the U.S. is seen as a poor investment by foreign citizens and firms.

Answer: A

24) If domestic savings is growing faster than domestic investment, the current account balance should be

• increasing.
• decreasing.
• unchanged.
• eliminated.

Answer: A

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