Dr. Nasser Duella                                    HW # 5
International Economics                             Fall 2015 

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question. 
Use the information in the table to answer the following question(s).

Table 9.1

1) 

Based on Table 9.1, the balance on the current account is 

1) 

_______ 
A) 

+100. 

B) 

+500 

C) 

-100. 

D) 

-200. 

E) 

0. 

 
2) 

Based on Table 9.1, the balance on the financial account is 

2) 

_______ 
A) 

0. 

B) 

-200. 

C) 

+200. 

D) 

-100. 

E) 

+100. 

 
3) 

If the residents of a country receive income from their foreign investments, it is counted as a 

3) 

_______ 
A) 

debit in the current account. 
B) 

credit in the current account. 
C) 

credit in the capital account. 
D) 

debit in the capital account. 
E) 

debit in either the capital or current account, depending on the type of investment income. 

 
4) 

Which of the following is NOT part of the current account? 

4) 

_______ 
A) 

Purchase of a plane ticket on a foreign airline 
B) 

Dividends received on a foreign investment 
C) 

Purchase of a foreign bond 
D) 

Shipment of food aid to a poor country 
E) 

All of the above. 

 
5) 

If a country runs a current account surplus and national private savings equals domestic investment, then the combined governmental accounts 

5) 

_______ 
A) 

must be balanced. 
B) 

must be negative. 
C) 

must be positive. 
D) 

could be either negative or positive, depending on the net international investment position. 
E) 

could be either negative or positive, depending on the capital account. 

 
6) 

If all government budgets are balanced, and S is greater than I, then 

6) 

_______ 
A) 

the net international investment position must be positive. 
B) 

the net international investment position must be negative. 
C) 

the capital account must be positive. 
D) 

the capital account must be negative. 
E) 

Both A and B. 

 
7) 

When the U.S. current account balance began to deteriorate, the federal budget deficit grew by an even greater amount. Consequently, it is safe to say that 

7) 

_______ 
A) 

domestic investment must have been growing. 
B) 

domestic investment must have been falling. 
C) 

private savings was greater than domestic investment. 
D) 

private savings was less than domestic investment. 
E) 

both private savings and domestic investment must have been falling. 

 
8) 

People sometimes worry that American trade with other countries will lead to large U.S. trade deficits and the movement of massive amounts of American capital out of the country. This worry is unfounded because countries cannot 

8) 

_______ 
A) 

increase their trade with other countries without increasing their savings. 
B) 

increase savings at the same time that a trade deficit grows. 
C) 

invest more than they save. 
D) 

have both current account and capital account deficits at the same time. 
E) 

spend more than they earn. 

 
Use the following table to answer the next question(s). All values are measured as a percent of GNP.

Table 9.2

9) 

Based on Table 9.2, total savings, private plus public, is equal to 

9) 

_______ 
A) 

18 percent of GNP. 
B) 

3 percent of GNP. 
C) 

0 percent of GNP. 
D) 

20 percent of GNP. 
E) 

None of the above. 

 
10) 

Based on Table 9.2, the current account balance is 

10) 

______ 
A) 

-4 percent of GNP. 
B) 

-2 percent of GNP. 
C) 

0 percent of GNP. 
D) 

+4 percent of GNP. 
E) 

None of the above. 

 
Use the following table to answer the next question(s). All values are net.

Table 9.3

11) 

Based on Table 9.3, the financial account balance is equal to 

11) 

______ 
A) 

+125. 

B) 

-225. 

C) 

-25. 

D) 

+25. 

E) 

-125. 

 
12) 

Based on Table 9.3, if values in the table are amended to reflect a net increase in U.S. foreign direct investment of 100, then the new balance for the financial account balance becomes 

12) 

______ 
A) 

-75. 

B) 

-25. 

C) 

+25. 

D) 

+225. 

E) 

+75. 

 
13) 

If domestic savings is less than domestic investment, then 

13) 

______ 
A) 

a trade deficit occurs. 
B) 

a positive trade deficit occurs. 
C) 

there will be a negative foreign investment. 
D) 

the government runs a budget deficit. 
E) 

Both A and C. 

 
14) 

A current account deficit implies that 

14) 

______ 
A) 

the financial account is in surplus. 
B) 

the financial account is negative. 
C) 

unilateral transfers are positive. 
D) 

exports of goods and services exceed imports of goods and services. 
E) 

None of the above. 

 
15) 

Which of the following is NOT true about this national income equation:  

15) 

______ 
A) 

For the current account, CA, to improve, we may have to save more to maintain the same amount of investment that includes foreign saving. 
B) 

A reduction in the trade deficit with one country will simply show up as an increase in a trade deficit with another country. 
C) 

For the current account, CA, to improve, we may have to invest less than otherwise would be the case. 
D) 

For the current account, CA, to improve, the government may have to run budget surplus. 
E) 

None of the above. 

 
16) 

Which of the following is NOT true about the national income identity given by the equation:   

16) 

______ 
A) 

If CA is positive, national saving finances the purchase of our goods by foreign users. 
B) 

If CA is negative, our investment exceeds our national savings. 
C) 

If CA is negative and large, a country risks foreigners owning a large piece of its assets. 
D) 

A negative CA may imply that foreigners have confidence in the U.S. economy. 
E) 

None of the above. 

 
17) 

Which of the following is FALSE? 

17) 

______ 
A) 

All countries have external debt. 
B) 

Current account deficits must be financed through inflows of capital. 
C) 

Borrowed funds are always used in a manner that contributes to the expansion of the country's productive capability. 
D) 

Loans from abroad add to a country's stock of external debt and generate debt service. 
E) 

Debt service can become an unsustainable burden that holds back development. 

 
18) 

One of the problems with excessive debt is that 

18) 

______ 
A) 

if debt service is substantial, schools, health clinics, roads, ports, other infrastructure, and social needs are less likely to be addressed. 
B) 

it worsens the central government's budget position by adding large debt service payments to other budget items. 
C) 

it can intensify and spread a crisis. 
D) 

it reduces the quantity of resources available to invest in economic development. 
E) 

All of the above. 

 
19) 

Critics of debt relief make all of the following arguments except 

19) 

______ 
A) 

the cost of debt relief to the most severely indebted countries is too large for the high income countries to afford. 
B) 

debt relief will encourage other nations to borrow excessively with the hope that their debts may be forgiven in the future. 
C) 

countries with large foreign debts are poorly administered. 
D) 

debt relief can quickly fuel a new round of borrowing that simply restores debt to prior levels. 
E) 

"it is money down a foreign rat hole." 

 
20) 

The difference between GNP and GDP is 

20) 

______ 
A) 

GNP excludes exports and imports. 
B) 

GNP includes income received from abroad and excludes income paid abroad. 
C) 

GNP excludes income received from abroad and includes income paid abroad. 
D) 

GNP includes exports and imports. 
E) 

GNP includes capital flows received from abroad and excludes capital flows to foreign countries. 

 
.