Chapter 03 Balance of Payments multiple

choice
Over half of all dollar bills in circulation are held outside American's borders.
TRUE

The current account balance, which is the difference between a country's exports and imports, is a component
of the country's GNP. Other components of GNP include consumption and investment and government
expenditure.

If the United States imports more than it exports, then this means that
the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris

Balance of payments D. all of the above

If a country is grappling with a major balance-of-payment difficulty, it may not be able to

If the United States imports more than it exports, then a and b ( the supply of dollars is likely to exceed the
demand in the foreign exchange market, ceteris paribus. one can infer that the U.S. dollar would be under
pressure to depreciate against other
currencies.)

The most important international reserve asset, comprising 94 percent of the total reserve assets held by IMF
member countries is. foreign exchanges.

The "one word that haunts the dollar" is (Central bank) diversification.

The vast majority of the foreign-exchange reserves held by central banks are denominated in U.S. dollars.

Among IMF member countries, the dollar's dominant position in the world's reserve holdings may decline to a
certain extent as the euro becomes a "known quantity" and its external value becomes more stable. In fact, the
euro's share has increased. from 13.5 percent in 1999 to 25.8 percent in 2006.

Which of the following would not count as a foreign-exchange reserve held by a central bank? The local
currency

The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity for a country with a
pure flexible exchange rate regime. BCA = -BKA

Assume that the balance-of-payments accounts for a country are recorded correctly.
Balance on the current account = BCA = $130 billion
Balance on the capital account = BKA = -$86 billion
Balance on the reserves account = BRA = ?

- The balance on the reserves account (BRA), under the fixed exchange regime is -$44 billion
- The balance on the reserves account (BRA), under the pure flexible exchange regime is none of the
above
- In a pure flexible exchange rate regime, a country's central banks will not need to maintain official
reserves. Under this regime -BCA = BKA.

When the balance-of-payments accounts are recorded correctly, the combined balance of the current account,
the capital account, and the reserves account must be zero.

The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity to solve for the
statistical discrepancy.The statistical discrepancy = BCA + BKA + BRA

BCA stands for the balance on the current account.

BKA stands for the balance on the capital account.

If the central banks of the world chose to diversify their foreign-exchange reserves away from the dollar and
into the euro, this would have the result of a weakening in the value of the dollar.
The economic theory of mercantilism holds that a continuing trade surplus should be a government's
major policy goal.

The U.S. Trade Deficit is both a capital account surplus and a current account deficit.

As of 2007 gold accounting for less than 2 percent of the total reserve assets held by IMF member
countries.

The most popular reserve currency is now the U.S. dollar.

Suppose a country is currently experiencing a trade deficit. In the long run, this could be self correcting if the
deficit exists because of the import demand for capital goods.

The capital account is divided into three subcategories: direct investment, portfolio investment, and other
investment. Direct investment involves. acquisitions of controlling interests in foreign businesses.

The capital account is divided into three subcategories: direct investment, portfolio investment, and other
investment. Portfolio investment involves investments in foreign stocks and bonds that do not involve
acquisitions of control.

The capital account is divided into three subcategories: direct investment, portfolio investment, and other
investment. "Other" investment involves bank deposits, currency investment, trade credit, and the like.

Over the last several years the U.S. has run persistent current account deficits.

If a country must make a net payment to foreigners because of a balance-of-payments deficit, the country
should either run down its official reserve assets or borrow anew from foreigners.

Under the fixed exchange rate regime the combined balance on the current and capital accounts will
be equal in size, but opposite
in sign, to the change in the official reserves.

Under the pure flexible exchange rate regime the balance on the current and capital accounts will be
equal in size, but opposite in sign.

More important than the absolute size of a country's balance-of-payments disequilibrium is the nature and
cause of the disequilibrium.

For questions in this section, the notation is X – M

The difference between a country's savings and investment is given by S - I

If the difference between tax revenue and government expenditures is negative, it implies that all of the
above

National income, or Gross National Product is given by GNP ≡Y ≡C + I + G + X - M

Which of the following is a true statement? BCA ≡X – M

There is an intimate relationship between a country's BCA and how the country finances its domestic
investment and pays for government expenditures. This relationship is given by BCA ≡X - M ≡(S - I) + (T - G).
Given this, which of the following is a true statement? both a) and b) are true (If (S - I) < 0, it implies that a
country's domestic savings is insufficient to finance domestic investment. If (T - G) < 0, it implies that a
country's tax revenue is insufficient to finance government spending)

There is an intimate relationship between a country's BCA and how the country finances its domestic
investment and pays for government expenditures. Given this, which of the following is a true statement?
both a) and b) are true ( A. If (S - I) < 0, it implies that a country's domestic savings is insufficient to finance
domestic investment. If (T - G) < 0, it implies that a country's tax revenue is insufficient to finance government
spending)

There is an intimate relationship between a country's BCA and how the country finances its domestic
investment and pays for government expenditures. This relationship is given by BCA ≡X - M ≡(S - I) + (T - G).
Given this, which of the following is a true statement? All of the above are true ( . If (S - I) < 0, it implies that
a country's domestic savings is insufficient to finance domestic investment. If (T - G) < 0, it implies that a
country's tax revenue is insufficient to finance government spending. When BCA is negative, it implies that
government budget deficits and/or part of domestic investment are being finance with foreign-controlled
capital)

There is an intimate relationship between a country's BCA and how the country finances its domestic
investment and pays for government expenditures. Given this, which of the following is a true statement? All
of the above are true. ( If (S - I) < 0, it implies that a country's domestic savings is insufficient to finance
domestic investment. If (T - G) < 0, it implies that a country's tax revenue is insufficient to finance government
spending When BCA is negative, it implies that government budget deficits an/or part of domestic investment
are being finance with foreign-controlled capital.)

There is an intimate relationship between a country's BCA and how the country finances its domestic
investment and pays for government expenditures. This relationship is given by BCA ≡X - M ≡(S - I) + (T - G).
Given this, in order for a country to reduce a BCA deficit, which of the following must occur? All of the above
would work to reduce a BCA deficit.

There is an intimate relationship between a country's BCA and how the country finances its domestic
investment and pays for government expenditures. Given this, in order for a country to reduce a BCA deficit,
which of the following must occur? All of the above would work to reduce a BCA deficit.