GPE TEST 1 UPDATED ACTUAL QUESTIONS AND CORRECT ANSWERS

GPE TEST 1 UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS

Question:
1. Based on Table 9.1, the balance on the current account is
A) +100.
B) +200.
C) -100.
D) -200.
Answer:
B +200

Question:
2. 2) Based on Table 9.1, the balance on the financial account is
A) +100.
B) +200.
C) -100.
D) -200.
Answer:
C -100

Question:
3. 3) Based on Table 9.1, the statistical discrepancy is
A) +100.
B) 0.
C) -100.
D) -200.
Answer:
C -100

Question:
4. Based on Table 9.1, if the information in the table is typical of current and financial account values over
a long period, then it would be reasonable to infer that
A) the net international investment position is negative.
B) the net international investment position is positive.
C) national savings are less than domestic investment.
D) government accounts are in deficit.
Answer:
A) the net international investment position is negative.

Question:
5. If the residents of a country receive income from their foreign investments, it is counted as a
A) credit in the current account.
B) debit in the current account.
C) credit in the capital account.
D) debit in the capital account.

,Answer:
A) credit in the current account.

Question:
6. Which of the following is NOT part of the current account?
A) Dividends received on a foreign investment
B) Purchase of a plane ticket on a foreign airline
C) Shipment of food aid to a poor country
D) Purchase of a foreign bond
Answer:
D) Purchase of a foreign bond

Question:
7. Which of the following is FALSE?
A) In 2002, the United States imported more goods and services from foreign suppliers than it exported to
foreign purchasers.
B) Services are almost one-third of total exports and are a growing part of U.S. and world trade.
C) The U.S. trade balance in services is in deficit.
D) With the exception of the Gulf War period in 1991, the U.S. current account has been in deficit since
the 1980s.
Answer:
C) The U.S. trade balance in services is in deficit.

Question:
8. The current account balance of the United States began to deteriorate in
A) the early 1970s.
B) the early 1980s.
C) the late 1980s.
D) the early 1990s.
Answer:
B) the early 1980s.

Question:
9. 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
A) increase savings at the same time that a trade deficit grows.
B) spend more than they earn.
C) invest more than they save.
D) have both current account and financial account deficits at the same time.
Answer:
D) have both current account and financial account deficits at the same time.

,Question:
10. A current account deficit implies that
A) the financial account is negative.
B) the financial account is in surplus.
C) exports of goods and services exceed imports of goods and services.
D) secondary income is positive.
Answer:
B) the financial account is in surplus.

Question:
11. Which of the following transactions would be recorded in the current account?
A) U.S. investors purchase bonds from Germany.
B) A person living in the United States sends money home to her family in Cuba.
C) The Fed increases its holdings of yen.
D) The U.S. transfers a military base to another country.
Answer:
B) A person living in the United States sends money home to her family in Cuba.

Question:
12. Which of the following transactions would be recorded in the capital account?
A) U.S. investors purchase bonds from Germany.
B) The Fed increases its holdings of yen.
C) The U.S. transfers a military base to another country.
D) A U.S. firm sells a machine to a business in another country.
Answer:
C) The U.S. transfers a military base to another country.

Question:
13. Which of the following transactions would be recorded in the financial account?
A) U.S. investors purchase bonds from Germany.
B) A person living in the United States sends money home to her family in Cuba.
C) The Fed increases its holdings of yen.
D) The U.S. transfers a military base to another country.
Answer:
A) U.S. investors purchase bonds from Germany.

Question:
14. If there is a trade deficit, which of the following is true?
A) The current account balance could be positive, negative, or zero.
B) There will be a current account deficit.
C) There will be a current account surplus.
D) There will be a financial account surplus.
Answer:
A) The current account balance could be positive, negative, or zero.

, Question:
15. Which of the following transactions would be recorded as a CREDIT in the current account?
A) A U.S. citizen purchases goods from Ireland.
B) A U.S. company pays dividends on its stock. Some of the dividends go to foreign owners of the stock.
C) The U.S. sells wheat to Mexico.
D) A person living in the United States sends money home to her family in Cuba.
Answer:
C) The U.S. sells wheat to Mexico.

Question:
16. Payments made to foreign countries that are not in exchange for goods or services are known as
A) remittances.
B) stock transfers.
C) exports.
D) investments.
Answer:
A) remittances.

Question:
17. True or false? Purchases of stocks and bonds are recorded in the capital account.
Answer:
false

Question:
18. True or false? If the trade balance is negative, the current account balance will be negative.
Answer:
false

Question:
19. Briefly describe the factors that contributed to the U.S. current account deficits of the 1990s.
Answer:
Answer: Rapid U.S. economic growth raised income and import demand; economic growth was low or
negative for U.S. trading partners, depressing export demand.

Question:
20. How do recent current account deficits compare to GDP and to past ratios?
Answer:
Answer: It is over 6 percent of GDP, much larger than it has been in the past, and the percentage has grown
sharply over the last few years.

Question:
21. Explain the difference between primary and secondary income.