Balance of Payments Review Questions

The​ (a)   is a record of all transactions between the residents of a country and the residents of all other countries. It measures​ (b)   , money received from other countries, and​ (c)   , payments made to other countries. At the end of the year, the balance must equal​ (d)  

• balance of payments
• credits
• debits
• zero
• balance of trade
• one
• terms of trade

Organize these options into the right categories

Groups:

(a) The Current Account

,

(b) The Capital Account

,

(c) The Financial Account

• Direct investments

• Reserve assets

• Balance of trade of services

• Portfolio investments

• Income

• Capital transfers

• Balance of trade of goods

• Non-produced, non-financial assets

• Current transfers

If the sum of a country's​ current and financial account is not equal to zero, then the difference is made up from (a)   . If the net balance of payments is negative, there is ​ (b)   and the country needs to ​ (c)   foreign currency. If the net balance of payments is positive, there is a​ (d)   and the country needs to ​ (e)   foreign currency.

• reserve assets
• deficit
• sell
• surplus
• buy
• capital account
• depreciation
• appreciation

If the US dollar depreciates, the US trade deficit ​ (a)   ​ because exports become ​ (b)   to foreigners.

• decreases
• cheaper
• increases
• more expensive

If the euro appreciates, the eurozone’s net exports will ​ (a)   because exports will become ​ (b)   to foreigners and imports will become (c)   .

• fall
• more expensive
• cheaper
• increase

If the British pound appreciates, demand pull inflation in the UK ​ (a)   because net exports fall, and cost push inflation ​ (b)   because imported inputs become cheaper.

• increases
• decreases
• appreciate
• depreciate