Download Balance of payments practice set

Name: ________________________________________________Date: ______________Class: _____
AP Macroeconomics
The Balance of Payments
Directions: For each of the following, determine if it represents a credit or debit to the balance
of payments and whether or not it is a current account, capital account, or an official reserves
transaction.
Scenario
Credit or Debit?
1.
Bob purchases $50,000 worth of common
stock in Korean manufacturer Hyundai.
Debit – money is
leaving the US
2.
A buyer for Macy’s purchases $1 million
dollars worth lamb’s wool sweaters from a
New Zealand textile firm.
Debit – money is
leaving the US
Current Account, US
firm is importing a
good
3.
Toyota builds a factory in San Antonio,
Texas.
Credit – money is
entering the US
4.
The Lorax, an American, purchases a
Japanese-made Toyota Prius.
Debit – money is
leaving the US
Capital Account,
direct “investment”
(foreign savings) in the
US
Current Account, US
buyer is importing a
good
5.
Boeing sells a new 787 to Emirates Air.
Credit – money is
entering the US
Current Account, US is
exporting the plane to
UAE
6.
An ARAMCO employee working in Saudi
Arabia sends most of his paycheck home
to his wife in Houston.
Credit – money is
entering the US
7.
Americans donate $25 million in Tsunami
relief to Thai relief organizations.
Debit – money is
leaving the US
Current Account,
factor income earned
by an American (the
worker is exporting his
service to the foreign
company)
Current Account,
foreign aid (transfer)
8.
The Federal Reserve acquires excess
foreign currency.
Debit – money is
flowing out of US
Official Reserves
9.
The Federal Reserve reduces its holdings
of foreign currency.
Official Reserves
10.
Chinese banks purchase United States
Treasury Bonds.
Credit – money is
flowing into the US
(sale of official
reserves creates inflow
of collars
Credit – money is
entering the US
© David Mayer, 2007
Current Account,
Capital Account or
Official Reserves?
Capital Account,
financial asset
Capital Account,
foreign investment in
the US (financial asset)