Download Taylor Economics Chapter 25 Test Bank

Chapter 10 Test Bank
Multiple Choice Questions
1. Goods and services produced in one country that are then sold in other countries are called
____________.
A. exports
B. tradeable items
C. surplus items
D. economic stimulants
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Remember
2. The term __________ is used to describe what those in one country buy from those in other
countries.
A. exports
B. imports
C. trade
D. surplus
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Remember
3. The term _____________ describes circumstances where a country's exports exceed its imports.
A. trade deficit
B. trade imbalance
C. trade surplus
D. trade balance
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Remember
4. The term _____________ describes circumstances where a country's imports exceed its exports.
A. trade imbalance
B. trade balance
C. trade surplus
D. trade deficit
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Remember
5. The term "merchandise trade balance" is used to describe:
A. the balance of trade in services.
B. the balance of trade in goods.
C. the level of trade in goods.
D. the level of trade in services.
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Remember
6. A country's current account balance refers to a broad measure of the balance of trade that
includes:
A. merchandise, services, and foreign capital investments.
B. goods, foreign capital investments, exported domestic services.
C. goods and services, international flows of income, and foreign aid.
D. merchandise, foreign aid and imported domestic services.
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
7. With respect to the national saving and investment identity for any country, the quantity of
_______________ at any given time by savings must ________________ for purposes of making
investments.
A. foreign aid supplied; be lower than the quantity of domestic aid demanded
B. foreign financial capital imports; equal to supply of domestic capital available
C. foreign capital imports; less than the supply of domestic capital available
D. financial capital supplied; equal the quantity of capital financial demanded
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
8. The ________________ refers to the gap that can exist between what a nation’s _____________, and a
nation’s ____________________.
A. balance of trade; producers sell abroad; imports
B. merchandise trade balance; exports; imports
C. trade surplus; exported services; imported goods
D. trade deficit; producers purchase abroad; exports
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
9. If exports ______________, then the economy is said to have a trade surplus.
A. equal imports
B. exceed imports
C. precede imports
D. follow imports
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Understand
10. If imports ______________, then the economy is said to have a trade deficit.
A. precede exports
B. follow exports
C. equal exports
D. exceed exports
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Understand
11. If exports and imports:
A. are imbalanced, then a trade surplus exists.
B. are imbalanced, then a trade deficit exits.
C. are equal, then trade is balanced.
D. are equal, then the economy is unhealthy.
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Remember
12. A series of macroeconomic events has led an economy into a deep recession. Which of the
following factors is most likely to have initiated this series of events?
A. level of trade
B. unbalanced trade
C. deficit level of trade
D. merchandize trade imbalance
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
13. From a macroeconomic perspective, if GDP economic indicators show a decline of 10% or
more in a single year, then which of the following outcomes is most likely to result?
A. deep economic recession
B. influx of foreign capital
C. lessening of foreign aid
D. merchandise trade surplus
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
14. Which of the following countries suffered deep recessions as a result of pessimistic foreign
investors moving their money to other countries?
A. Russia, and Indonesia
B. Thailand, Argentina and Malaysia
C. North Korea and Malaysia
D. South Korea and a and b
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
15. Trade surpluses and trade deficits can be __________________ for an economy in certain
circumstances.
A. beneficial
B. harmful
C. either a or b
D. neither a or b
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Understand
16. An economy with a larger involvement in foreign trade:
A. is more likely to suffer a larger trade imbalance.
B. may measure its exports as a share of GDP.
C. has a substantial trade imbalance.
D. has an underlying trade imbalance.
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
17. The extent to which a national economy is involved in global trade:
A. is not very strongly related to the issue of whether the economy has a substantial trade
imbalance.
B. is not very strongly related to the underlying economic meaning of trade imbalances.
C. is not very strongly related to either a or b above.
D. is very strongly related to both a and b above.
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
18. What is the most common method of measuring flows of trade?
A. amount of physical items transported between countries
B. amount of manufactured items transported by truck
C. comparing annual amounts of goods and services exchanged between countries
D. comparing exports of goods, services, and financial capital between countries
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
19. In most high-income economies, including the United States, goods currently make up
___________, while services currently compose ____________.
A. more than half of total production; less than half of total production
B. less than half of total production; more than half of total production
C. the merchandise trade balance; the capital trade balance
D. the merchandise trade balance; the retail trade balance
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Remember
20. The surge in international trade related to services to be performed in one country and sold in
another that began in the 1990s has been powered by which of the following?
A. technological advances
B. telecommunications
C. computers
D. customer service, finance, law
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
21. At the outset of the 21st century, most global trade took the form of:
A. services, rather than goods.
B. goods, rather than services.
C. equal trade in goods and services.
D. trade surpluses in the service sector.
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Remember
22. Economists typically rely on a broader measure of international trade known as the
___________________, which includes _____________________________.
A. current trade balance; foreign aid announced by the government.
B. current trade balance; finance, law, and software product design.
C. current account balance; telecommunications, computers, finance, law, and advertising.
D. current account balance; goods, services, international income flows, and foreign aid.
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
23. In the United States, which of the following government institutions would most likely provide
economists with the basic data for merchandise trade?
A. Census Bureau
B. Department of Commerce
C. Bureau of Economic Analysis
D. Department of the Treasury
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
24. In the U.S., all companies involved in international flows of capital must file reports, which are
ultimately compiled by the:
A. Census Bureau.
B. Department of the Treasury.
C. Bureau of Economic Analysis.
D. Department of Commerce.
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
25. One of the following must be used as a starting point in order to perform an analysis that will
determine what the connections between imbalances of trade in goods and services and the
flows of international financial capital are. Which one is it?
A. sketch patterns of trade deficits
B. sketch patterns of trade surpluses
C. define the level of trade
D. define the balance of trade
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
26. An economics professor is discussing a measure of trade that involves a comparison of
exports and imports of goods for the year just ended. What name is given to this measurement?
A. export trade balance
B. merchandise trade balance
C. import trade balance
D. current account balance
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Remember
27. Why would an analyst include, among other things, airplane parts, legal services and software,
in an analysis of international economic trade?
A. to determine the merchandise trade balance
B. to determine the balance of trade in services
C. to determine the current account balance
D. to determine the international flow of income
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
28. From a macroeconomic perspective, an economic transaction in the form of a financial
investment is synonymous with which of the following?
A. a productive economic asset
B. trade resulting from unilateral transfers
C. trade in the financial capital market
D. a stream of payments leaving the country
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Understand
29. From an economic perspective, returns on foreign investment are included in the overall
measure of trade because financial investments:
A. are a form of trade that takes place in the financial capital market.
B. can also be thought of as payments made by the government.
C. are made by parties in the U.S. economy and foreign investors.
D. have expanded substantially in the U.S. over the last few decades.
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
30. Which of the following would most likely be included in the positive side of the U.S. current
account balance?
A. U.S. foreign aid sent to as disaster relief to Haiti
B. interest payments to foreign investors invested in the U.S.
C. money spent by U.S. tourists in Europe
D. money earned by U.S. firms in Europe
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
31. Which of the following would most likely be included in the negative side of the current
account balance?
A. money earned by Canadian firms in the U.S.
B. money spent by Canadian tourists in the U.S.
C. returns paid to U.S. investors in Southeast Asia
D. European aid sent to the U.S. to fund the Iraq war
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
32. In 2010, a small country imported goods worth $500 billion and exported goods worth $443
billion. It exported services worth $248 billion and imported services worth $330 billion. Payments
on investments abroad totaled $199 billion, while returns paid on foreign investments were $125
billion. Unilateral transfers from the country to other nations amounted to $94 billion. What was
the country's merchandise trade deficit for 2010?
A. $70 billion
B. $154 billion
C. $57 billion
D. $65 billion
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Apply
33. In 2010, a country imported goods worth $500 billion and exported goods worth $443 billion.
It exported services worth $248 billion and imported services worth $330 billion. Payments on
investments abroad totaled $199 billion, while returns paid on foreign investments were $125
billion. Unilateral transfers from the country to other nations amounted to $94 billion. What was
the country’s current account balance for 2010?
A. $70 billion
B. $159 billion
C. $142 billion
D. $65 billion
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Apply
34. In 2010, the country of Vesey exported goods worth $312 billion and services worth $198
billion. It imported goods worth $525 billion and services worth $255 billion. It sent $1.2 billion in
famine relief to Africa, and received $3 billion to support its first democratic election efforts.
What was the merchandise trade deficit in Vesey in 2010?
A. $213 billion
B. $270 billion
C. $57 billion
D. $1.8 billion
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Apply
35. In 2010, the country of Vesey exported goods worth $312 billion and services worth $198
billion. It imported goods worth $525 billion and services worth $255 billion. It sent $1.2 billion in
famine relief to Africa, and received $3 billion to support its first democratic election efforts.
What was the current account balance in Vesey for 2010?
A. $251.2 billion
B. $270.6 billion
C. $213.3 billion
D. $271.8 billion
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Apply
36. The final category of the current account balance is ____________________, which can be thought
of as payments made by individuals in which money is sent abroad _________________________.
A. income payments; and the returns are received from abroad
B. trade in services; by domestic financial firms are treated like imports
C. unilateral transfers; without any direct good or service being received
D. exports of goods; can cause a merchandise trade deficit
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
37. Which of the following accurately reflects the pattern of the U.S. current account balance
during the periods: 1991; the late 1990s through to the mid-2000s; and 2009 following the onset
of recession?
A. larger deficit; tiny surplus; surplus declined
B. tiny surplus; larger deficit; deficit declined
C. surplus declined; larger deficit; tiny surplus
D. larger deficit; surplus declined; tiny deficit
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Evaluate
38. In 2009, because U.S. imports were $2,535 billion while exports were $2,116 billion:
A. imports exceeded exports by a sizeable $419 billion.
B. there was a huge influx of foreign capital into the U.S. economy.
C. government policy caused a lessening of foreign aid.
D. exports exceeded imports by a sizeable $419 billion.
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
39. To a macroeconomist, a trade deficit is synonymous with which of the following?
A. outflow of financial capital
B. outflow of goods and services
C. inflow of financial capital
D. inflow of goods and services
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Understand
40. Which of the following terms is sometimes used to describe the balance of trade?
A. balance of payments
B. balance of capital flows
C. balance of financial investment
D. balance of investment capital
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Understand
41. If a country's current account balance is zero and the financial payments flowing in and out of
the country's economy are equal, then which of the following must be a true statement?
A. it has an overall or net inflow of financial investment
B. it is not an overall or a net investor in other countries
C. it has an overall or net outflow of financial investment
D. its government is not indebted to other governments
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Apply
42. In what way are the factors used to calculate the current account balance similar to each
other?
A. each is like a stream, though some flow in different directions
B. all refer to ways governments invest their tax resources
C. all reflect workers' unilateral payments to home countries
D. each involves a flow of financial payments between countries
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
43. Which of the following represents the national savings and investment identity - Supply of
financial capital = Demand for financial capital - expressed in algebraic terms?
A. (M – X) = I – S – (T – G)
B. S + (M – X) = I + (G – T)
C. X – M = S + (G – T) – I
D. I – S – (T – G) = (M – X)
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
44. Assume that the level of domestic investment in a country rises, while the level of private and
public saving remains unchanged. In these circumstances:
A. the rise in domestic investment will mean a higher trade deficit.
B. the rise in domestic investment will mean a higher trade surplus.
C. government borrowing will increase sharply.
D. the trade deficit will decline sharply.
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
45. The statement that GDP = C + I + G + X – M is an identity, because
________________________________.
A. trade surpluses can be either good or bad
B. trade deficits can be either good or bad
C. it is true according to the definition of GDP
D. each trade is conducted on a voluntary basis
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Understand
46. Only one of the following statements about trade surplus and capital flow is correct. Which
one is it?
A. a trade surplus means that there is a net inflow of capital
B. a trade surplus means that there is a net outflow of capital
C. a trade surplus exists if there is a net inflow of capital excluding foreign borrowing and lending
D. a trade surplus exists if there is a net outflow of capital excluding foreign borrowing and
lending
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
47. Only one of the following statements about the trade surplus is correct. Which one is it?
A. the government should always strive for a trade surplus and a healthy inflow of foreign capital
B. the government generating a trade surplus is better than increasing foreign capital inflows
C. increasing foreign capital investment is better than generating a trade surplus
D. generating a trade surplus and an overall net inflow of capital is impossible
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
48. When did the U.S. current account balance experience the largest surplus?
A. before the 1980s
B. 1980s and 1990s
C. 1990s and 2000s
D. after the 2000s
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Remember
49. Which of the following represents a financial inflow into the U.S. economy?
A. South Korean car imports
B. Canadian investors buying real estate in Arizona
C. foreign aid from the U.S. to Haiti
D. oil imports from Iraq
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
50. Which of the following represents a financial inflow to the U.S. economy?
A. returns paid on U.S. financial investments in Switzerland
B. computer chip imports from Israel
C. oil imports from Canada
D. foreign aid from the U.S. to Ethiopia
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
51. Which of the following represents a financial outflow from the U.S. economy?
A. U.S. computer exports to Poland
B. returns paid on U.S. financial investment in Hong Kong
C. U.S. investors buying foreign assets in Germany
D. British investors buying real estate in Kentucky
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
52. Which of the following involves a financial outflow from the U.S. economy?
A. South Korean investors buy firms in the U.S
B. Chinese investors buy real estate across the U.S.
C. returns paid on U.S. investments in France
D. U.S. firms buying logging rights to China's forests
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
53. A country finds itself in the following situation: a government budget deficit of $800; total
domestic savings of $1800, and total domestic physical capital investment of $1300. According to
the national saving and investment identity, what is the current account balance?
A. deficit of $1300
B. surplus of $300
C. deficit of $300
D. surplus of $1300
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Apply
54. A country finds itself in the following situation: a government budget deficit of $900; total
domestic savings of $200, and total domestic physical capital investment of $1300. According to
the national saving and investment identity, if investment decreases by $300 while the
government budget deficit and savings remain the same, what will happen to the current account
balance?
A. $200 deficit changes to $100 surplus
B. surplus increases from $200 to $500
C. $200 surplus changes to $100 deficit
D. deficit decreases from $900 to $600
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Apply
55. A government finds itself in the following situation: a government budget deficit of $900;
total domestic savings of $2000, and total domestic physical capital investment of $1300.
According to the national saving and investment identity, if investment increases by $200 while
the government budget deficit decreases by $100 and savings remain the same, what will happen
to the current account balance?
A. current account becomes 0
B. deficit increases from $200 to $400
C. deficit decreases from $200 to $100
D. deficit increases from $200 to $300
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Apply
56. A country finds itself in the following situation: the government budget surplus is 2% of its
GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national
saving and investment identity, what is this country's current account balance?
A. deficit of 2% of GDP
B. surplus of 1% of GDP
C. deficit of 1% of GDP
D. deficit of 3% of GDP
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Apply
57. A country finds itself in the following situation: the government budget surplus is 2% of its
GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national
saving and investment identity, if private savings fall to zero, what will happen to this country's
current account balance?
A. deficit increases from 2% to 32% of GDP
B. deficit increases from 1% to 31% of GDP
C. surplus of 1% drops to deficit of 29% of GDP
D. surplus of 2% drops to deficit of 28% of GDP
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Apply
58. A country finds itself in the following situation: the government budget surplus is 2% of its
GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national
saving and investment identity, if the government budget surplus falls to zero, what will happen
to this country's current account balance?
A. surplus of 1% drops to 1% deficit of GDP
B. surplus of 2% increases to 4% surplus of GDP
C. deficit of 1% increases to 2% surplus of GDP
D. deficit increases from 1% to 3% of GDP
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Apply
59. When some countries increase their imports as a result of worldwide economic growth, other
countries must be increasing their:
A. exports as demand in all countries substantially rises.
B. trade deficits since all of their imports significantly rise.
C. trade surplus since all of their exports gradually rise.
D. imports, but their trade deficits gradually decrease.
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
60. From a macroeconomic perspective, a payment made by a foreign firm to a U.S. investor
looks just like an:
A. import of a service.
B. import of a good.
C. export of a service.
D. export of a good.
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Remember
61. The two main sources for the supply of capital in the U.S. economy are:
A. private sector investment and government borrowing when spending is higher than tax
revenues.
B. domestic savings from individuals and firms and inflows of financial capital from foreign
investors.
C. domestic savings from individuals and firms and government borrowing to make up a tax
shortfall.
D. domestic private sector borrowing and inflows of financial capital from foreign investors.
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Remember
62. A country's current national savings and investment identity is expressed in algebraic terms as
(M – X) = I – S – (T – G). In this instance:
A. domestic investment is higher than domestic savings.
B. domestic savings exceed domestic investment.
C. the country is experiencing a trade surplus.
D. government savings are excluded.
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
63. A country's current national savings and investment identity is expressed in algebraic terms as
X – M = S + (G – T) – I. In this instance:
A. there is an inflow of capital investment from the rest of the world economy.
B. there is no connection from domestic savings and investment to the trade balance.
C. the trade balance is determined by performance of certain sectors of the economy.
D. private and public domestic savings are higher than domestic investment.
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
64. A country's current national savings and investment identity is expressed in algebraic terms as
I – S – (T – G) = (M – X). Assume that the level of domestic investment in a country rises, while the
level of private and public saving remains unchanged. In this instance, the rise in domestic:
investment will mean
A. a higher trade surplus.
B. a lower trade surplus.
C. a higher trade deficit.
D. trade will be perfectly balanced.
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
65. A country's current national savings and investment identity is expressed in algebraic terms as
I – S – (T – G) = (M – X). Assume that the level of domestic savings rises, while the level of
domestic investment and private saving remains unchanged. In this instance:
A. less foreign financial capital is required to meet investment needs.
B. government policy will involve increasing private savings.
C. the country's trade deficit will decline.
D. all of the above
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Analyze
66. The national saving and investment identity teaches that the rest of the economy can absorb
an inflow of foreign financial capital by:
A. reduced private savings, leaving domestic investment and public saving unchanged.
B. higher domestic investment, leaving private and public savings unchanged.
C. greater government borrowing, leaving domestic saving and investment unchanged.
D. leaving domestic saving and investment unchanged using any of the above.
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Analyze
67. One insight that can be obtained from the national saving and investment identity is that a
nation’s balance of trade is determined by:
A. foreign investment as a part of supply of financial capital.
B. each nation’s own levels of domestic saving and domestic investment.
C. foreign investment as part of the demand for financial capital.
D. all of the world government budgets and the overall global trade balance.
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Remember
68. A recession tends to make a _____________________.
A. trade surplus smaller
B. trade deficit smaller
C. trade deficit larger
D. both a and b above
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Remember
69. A period of strong economic growth tends to make a __________________.
A. trade surplus larger
B. a trade surplus
C. trade deficit larger
D. both a and b above
Answer: C Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Remember
70. Which of the following will strongly influence a nation’s level of trade?
A. size of its economy, its geographic location, and its history of trade
B. size of its government, its history of trade, and its geographic location
C. government trade policy, its history of trade, and the size of its economy
D. ratio of exports to GDP, balance of trade, and government trade policy
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Analyze
71. Under what conditions would a nation be viewed as being neither a net borrower nor a net
lender in the international economy?
A. it has a low level of trade and a large trade surplus
B. it has a medium to high level of trade and a moderate trade surplus
C. it has a high level of trade and a moderate trade deficit
D. its trade balance is zero
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Easy
Category: Understand
72. Under what circumstances would it most likely be considered beneficial for a government to
be a large borrower of foreign investment capital?
A. never as there is no economic merit in a policy of running trade deficits
B. if the inflow of capital is absorbed by greater government borrowing
C. when borrowing larger amounts is based on unconventional macroeconomic wisdom
D. when those funds are invested in a way that sustains economic growth over time
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
73. A country's trade in manufactured goods diminished substantially, causing it to lose tax
revenue and become a net borrower of foreign funds. For the next two decades, its government
used the borrowed funds to upgrade the nation's waste-water treatment plants and to develop
efficient rapid transit systems, creating substantial gainful employment for its workforce.
Thereafter, the country began to quickly repay its past borrowing debt. Which of the following
most strongly supported this country’s successful economic recovery?
A. ensuring borrowed funds were invested in long-term productive economic assets
B. ensuring that larger borrowing reduced the need for more private savings
C. the creation of a trade deficit through more aggressive buying of imports
D. global policies of low interest rates charged on funds borrowed by governments
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Evaluate
74. If a country's economy records a surplus, how will the X and M components be represented in
its national savings and investment identity?
A. (X - M); right side
B. (X - M); left side
C. (M - X); demand side
D. (M - X); supply side
Answer: B Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
75. During the past year a country's government ran a budget surplus. How will this be
represented as a component of in the country's national savings and investment identity?
A. (T - G); demand side
B. (G - T); right side
C. (G - T); left side
D. (T - G); saving side
Answer: D Reference:
Explanation:
Type: Multiple Choice
Difficulty: Medium
Category: Understand
76. One of the questions on Anders' economics exam provided him with the algebraic term:
I + (G - T) = S + (M – X) and asked him to choose its matching written identity. Of the following
possible answers presented on the exam, which one is the correct choice?
A. Demand for financial capital = Supply of financial capital
B. Investment + government savings = Supply + trade surplus
C. Trade surplus + government savings = Supply + trade deficit
D. Domestic investment + public savings = Domestic savings + trade deficit
Answer: A Reference:
Explanation:
Type: Multiple Choice
Difficulty: Hard
Category: Evaluate
Essay Questions
Essay Questions
1. Briefly explain what the term "balance of trade" refers to from a macroeconomic perspective
and include a brief description of how exports and imports influence the balance of trade.
The balance of trade refers to the gap, if any, between a nation’s exports, or what its producers
sell abroad, and a nation’s imports, or the foreign-made products and services purchased by
households and businesses.
If exports exceed imports, the economy is said to have a trade surplus. If imports exceed exports,
the economy is said to have a trade deficit. If exports and imports are equal, then trade is
balanced.
Reference:
Explanation:
Type: Essay
Difficulty: Medium
Category: Understand
2. Briefly discuss the terms "merchandise trade balance" and "current account balance."
The merchandise trade balance measures only imports and exports of goods. The current account
balance includes trade in goods, services, payments on foreign investments, and unilateral
transfers.
Reference:
Explanation:
Type: Essay
Difficulty: Easy
Category: Understand
3. Briefly discuss the final category of the U.S. current account balance, including its name, what it
is comprised of, how the category is treated by the current account balance and why, as well as
the category's typical status.
The final category of the current account balance is unilateral transfers. Unilateral transfers are
made by government, private charities, or individuals in which money is sent abroad without any
direct good or service being received. The current account balance treats these unilateral
payments like imports, because they also involve a stream of payments leaving the country. For
the U.S. economy, unilateral transfers are almost always negative.
Reference:
Explanation:
Type: Essay
Difficulty: Hard
Category: Understand
4. In the context of the national savings and investment identity, briefly describe the main sources
for both the supply of and demand for capital in the U.S. economy.
There are two main sources for the supply of capital in the U.S. economy: saving by individuals
and firms, called S, and the inflow of financial capital from foreign investors, which is equal to the
trade deficit M – X, or imports minus exports.
There are two main sources of demand for financial capital in the U.S. economy: private sector
investment, I, and government borrowing, where the government needs to borrow when
government spending, G, is higher than the taxes collected, T.
Reference:
Explanation:
Type: Essay
Difficulty: Hard
Category: Understand
5. Express the national savings and investment identity in algebraic terms.
S + (M – X) = I + (G – T)
Reference:
Explanation:
Type: Essay
Difficulty: Easy
Category: Understand
6. In the case of a trade deficit, rewrite the national savings and investment identity in algebraic
terms.
(M – X) = I – S – (T – G)
Reference:
Explanation:
Type: Essay
Difficulty: Medium
Category: Understand
7. Using words, describe the national savings and investment identity from the standpoint of a
trade surplus.
Trade surplus = Private domestic saving + Public saving – Domestic investment
Reference:
Explanation:
Type: Essay
Difficulty: Medium
Category: Understand
8. Briefly explain how short-term movements in the business cycle affect the trade balance.
In the short-term, the trade balance can be affected by whether an economy is in a recession or
an upswing. A recession tends to make a trade deficit smaller, or a trade surplus larger, while the
upswing created by a period of strong economic growth tends to make a trade deficit larger, or a
trade surplus smaller.
Reference:
Explanation:
Type: Essay
Difficulty: Medium
Category: Understand
9. Briefly describe the pattern for the U.S, economy with respect to its current account balance
from the 1950s up to and including 2009.
The U.S. economy ran modest current account trade surpluses for most years from the 1950s to
the 1970s. It rapidly developed large trade deficits in the early 1980s, swung back to a tiny trade
surplus in 1991, then had even larger trade deficits in the late 1990s and early 2000s, and in 2009,
after the recession had taken hold, the trade deficit declined.
Reference:
Explanation:
Type: Essay
Difficulty: Medium
Category: Understand
10. Briefly contrast a nation’s level of trade with its balance of trade and identify three factors that
strongly influence a nation's level of trade.
A country can have a very high level of trade, measured by its exports of goods and services as a
share of its GDP, while it also has a near-balance between exports and imports.
A country’s trade can be a relatively low share of GDP, relative to global averages, while the
imbalance between its exports and its imports may be quite large.
Three factors that strongly influence a nation’s level of trade are: the size of its economy, its
geographic location, and its history of trade.
Reference:
Explanation:
Type: Essay
Difficulty: Hard
Category: Understand
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