BALANCE OF PAYMENT Multiple Choice Questions 1. Which of the following is true for a closed economy, but is not necessarily true for an open economy? a. Y=C+I+G+EX-IM b. CA+EX-IM c. CA=S-I d. Y=C+G+S Answer: d 2. Which of the following is NOT an account in the balance of payments? a. Current Account b. Capital Account c. Financial Account d. Future Account Answer: d 3. A purchase of foreign reserves by a country’s Central Bank would be reflected as: a. A credit in the current account and a debit in the financial account b. An entry in a separate account off the balance of payments c. A debit in the current account and a credit in the financial account d. A credit in the financial account and a debt in the financial account.

Answer: d 4. What does the term “balance of payment deficit” refer to? a. A decline in official international reserves. b. An increase in official international reserves c. A negative statistical discrepancy d. A positive statistical discrepancy Answer: a 5. Which of the following is NOT true about the current account? a. It equals the difference between savings and investments b. It equals the difference between exports and imports c. It equals the net receipts of factor income from abroad d. It equals goods production minus domestic demand e. It equals the change in a country’s foreign wealth. Answer: c 6. If the U.S. buys Web services from an Indian Company and the Indian company deposits the payments in the branch of an American Bank, it will be reflected in the U.S balance of payments as: a. A credit in the current account and a debit in the financial account. b. A debit in the current account and a credit in the financial account. c. A credit in the current account and a debit in the current account. d. A credit in the financial account and a debit and a debit in the financial account.

Answer: b 7. A Japanese tourist goes to a casino in Las Vegas and pays from his bank account at a Japanese bank using his bank card. This transaction will be reflected in the U.S balance of payments as: a. A debit in the current account and a credit in the financial account. b. A credit in the current account and a debit in the financial account c. A credit in the capital account and a debit in the financial account d. A debit in the capital account and a credit in the current account. Answer: b 8. If a U.S. bank forgives a large share of a debt owed by a firm in Argentina, it will be reflected in the U.S. balance of payments as: a. A credit in the current account and a debit in the financial account. b. A credit in the capital account and a debit in the financial account c. A debit in the capital account and a credit in the current account. d. A debit in the current account and a credit in the financial account. e. None of the above. Answer: a 9. What is official settlements balance? a. One of the accounts in the balance of payments b. Everything in the balance of payments except for the official foreign reserves c. Another name for the capital account d. Another name for the financial account Answer: a