Which of the following is NOT a component of the current account of the balance of payments?
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C. Foreign direct investment Foreign direct investment is part of the financial account, not the current account.
A country has exports of $200 billion, imports of $250 billion, income from abroad of $30 billion, and payments to foreign investors of $20 billion. What is the current account balance?
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A. -$40 billion The current account balance is calculated as (exports + income from abroad) - (imports + payments to foreign investors), which equals ($200 billion + $30 billion) - ($250 billion + $20 billion) = -$40 billion.
Which of the following is a likely cause of a current account deficit?
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B. A strong currency A strong currency makes exports more expensive and imports cheaper, leading to a likely current account deficit.
A current account surplus could lead to:
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B. An increase in domestic interest rates A current account surplus can lead to an increase in domestic interest rates as the country attracts more foreign capital.
Which policy might a government use to reduce a current account deficit?
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B. Implementing protectionist measures Protectionist measures, such as tariffs or quotas, can reduce imports and improve the current account balance.
A country with a persistent current account deficit might experience:
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D. A decrease in its currency value A persistent current account deficit can lead to a decrease in the country's currency value as it relies on foreign capital to finance the deficit.
Which of the following is a consequence of a current account surplus?
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B. An increase in the country's foreign exchange reserves A current account surplus leads to an increase in the country's foreign exchange reserves as it earns more from exports than it spends on imports.
A government might use which of the following policies to achieve balance of payments stability?
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B. Implementing a fixed exchange rate system A fixed exchange rate system can help achieve balance of payments stability by controlling the value of the country's currency.
Which of the following is a likely cause of a current account surplus?
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A. A weak currency A weak currency makes exports cheaper and imports more expensive, leading to a likely current account surplus.
A country has exports of $150 billion, imports of $120 billion, income from abroad of $20 billion, and payments to foreign investors of $10 billion. What is the current account balance?
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B. $60 billion The current account balance is calculated as (exports + income from abroad) - (imports + payments to foreign investors), which equals ($150 billion + $20 billion) - ($120 billion + $10 billion) = $60 billion.
Which of the following is a consequence of a current account deficit?
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C. A decrease in the country's currency value A current account deficit can lead to a decrease in the country's currency value as it relies on foreign capital to finance the deficit.
A government might use which of the following policies to reduce a current account surplus?
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C. Increasing government spending Increasing government spending can stimulate domestic demand and lead to an increase in imports, reducing a current account surplus.
Which of the following is a component of the current account of the balance of payments?
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B. Income from investments abroad Income from investments abroad is a component of the current account, while the other options are part of the financial account.
A country with a persistent current account surplus might experience:
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B. An appreciation of its currency A persistent current account surplus can lead to an appreciation of the country's currency as it earns more from exports than it spends on imports.
Which of the following is a likely cause of a current account deficit?
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D. A decrease in the price of imported goods A decrease in the price of imported goods can lead to an increase in imports and a likely current account deficit.