GPE TEST #1 QUESTIONS UPDATED AND CORRECT
ANSWERS UPDATED QUESTIONS AND CORRECT
ANSWERS
Question:
1. If the residents of a country receive income from their foreign investments, it is counted as a
Answer:
credit in the current ac-count
Question:
2. Which of the following is NOT part of the current ac-count?
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:
Purchase of a foreign bond
Question:
3. 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:
4. The current account balance of the United States be-gan to deteriorate in
Answer:
the early 1980s
Question:
5. 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
Answer:
have both current ac-count and financial ac-count deficits at the same time.
Question:
6. A current account deficit implies that
Answer:
the financial account is in surplus
,Question:
7. Which of the following transactions would be record-ed in the current account?
A.) A person living in the United States sends money home to her family in Cuba B.) U.S. investors
purchase bonds from Germany.
C) The Fed increases its holdings of yen.
D) The U.S. transfers a military base to another coun-
try.
Answer:
A.) A person living in the United States sends mon-ey home to her family in Cuba
Question:
8. Which of the following transactions would be record-ed 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 coun-
try.
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:
9. Which of the following transactions would be record-ed 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 coun-
try.
Answer:
A.) U.S. investors purchase bonds from Germany
Question:
10. If there is a trade deficit, which of the following is true?
A) The current account balance could be positive, neg-
ative, 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:
11. Which of the following transactions would be record-ed 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:
12. Payments made to foreign countries that are not in exchange for goods or services are known as
Answer:
remittances
Question:
13. Purchases of stocks and bonds are recorded in the capital account. (T/F)
Answer:
FALSE
Question:
14. If the trade balance is negative, the current account balance will be negative. (T/F)
Answer:
FALSE
Question:
15. Briefly describe the factors that contributed to the U.S. current account deficits of the 1990s.
Answer:
Rapid U.S. economic growth raised income and import demand; econom-ic growth was low or
neg-ative for U.S. trading part-ners, depressing export demand.
Question:
16. How do recent current account deficits compare to GDP and to past ratios?
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:
17. Explain the difference between primary and sec-ondary income.
Answer:
Earned income paid abroad and received from abroad is called primary income. This includes
in-come on investments and compensation of employ-ees. Secondary income is pay-ments made
abroad or re-ceived from abroad such as payments made that are not in exchange for a good or
service, like foreign aid, gifts, or the remittances (the transfer of wages earned in one country to
residents of an-other country) of immi-grants temporarily resid-ing in another country.
Question:
18. Which of the following is an example of a financial derivative?
A) An option to purchase stock in the future
B) A share of stock in Microsoft
C) A U.S. government bond
D) Monetary gold
, Answer:
A) An option to purchase
stock in the future
Question:
19. All of the following are true about foreign direct in-vestment (FDI) and portfolio investment
except
A) increases in the flow of portfolio investments in-
crease the likelihood of financial crisis.
B) both portfolio investments and FDI are the same in
that they both give their holders a claim on the future output of the foreign economy.
C) FDI is relatively illiquid compared to portfolio invest-
ment.
D) FDI changes very little from year to year.
Answer:
D) FDI changes very little
from year to year.
Question:
20. Capital controls are most often aimed at slowing or eliminating movements of
Answer:
foreign portfolio invest-ment.
Question:
21. Which of the following is an example of foreign direct investment?
A) Toyota builds an automobile plant in Ohio.
B) The Bank of Japan buys dollars.
C) A citizen of Japan buys stock in Microsoft.
D) A citizen of Japan buys a U.S. government bond.
Answer:
A) Toyota builds an auto-
mobile plant in Ohio.
Question:
22. Which of the following is an example of portfolio in-vestment?
A) Toyota builds an automobile plant in Ohio.
B) The Bank of Japan buys dollars.
C) A citizen of Japan buys stock in Microsoft.
D) A citizen of Japan buys an option to purchase Mi-
crosoft stock in the future.
Answer:
C) A citizen of Japan buys
stock in Microsoft.
Question:
23. Which of the following is an example of a change in reserve assets?
A) Toyota builds an automobile plant in Ohio.
B) The Bank of Japan buys dollars.
ANSWERS UPDATED QUESTIONS AND CORRECT
ANSWERS
Question:
1. If the residents of a country receive income from their foreign investments, it is counted as a
Answer:
credit in the current ac-count
Question:
2. Which of the following is NOT part of the current ac-count?
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:
Purchase of a foreign bond
Question:
3. 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:
4. The current account balance of the United States be-gan to deteriorate in
Answer:
the early 1980s
Question:
5. 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
Answer:
have both current ac-count and financial ac-count deficits at the same time.
Question:
6. A current account deficit implies that
Answer:
the financial account is in surplus
,Question:
7. Which of the following transactions would be record-ed in the current account?
A.) A person living in the United States sends money home to her family in Cuba B.) U.S. investors
purchase bonds from Germany.
C) The Fed increases its holdings of yen.
D) The U.S. transfers a military base to another coun-
try.
Answer:
A.) A person living in the United States sends mon-ey home to her family in Cuba
Question:
8. Which of the following transactions would be record-ed 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 coun-
try.
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:
9. Which of the following transactions would be record-ed 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 coun-
try.
Answer:
A.) U.S. investors purchase bonds from Germany
Question:
10. If there is a trade deficit, which of the following is true?
A) The current account balance could be positive, neg-
ative, 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:
11. Which of the following transactions would be record-ed 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:
12. Payments made to foreign countries that are not in exchange for goods or services are known as
Answer:
remittances
Question:
13. Purchases of stocks and bonds are recorded in the capital account. (T/F)
Answer:
FALSE
Question:
14. If the trade balance is negative, the current account balance will be negative. (T/F)
Answer:
FALSE
Question:
15. Briefly describe the factors that contributed to the U.S. current account deficits of the 1990s.
Answer:
Rapid U.S. economic growth raised income and import demand; econom-ic growth was low or
neg-ative for U.S. trading part-ners, depressing export demand.
Question:
16. How do recent current account deficits compare to GDP and to past ratios?
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:
17. Explain the difference between primary and sec-ondary income.
Answer:
Earned income paid abroad and received from abroad is called primary income. This includes
in-come on investments and compensation of employ-ees. Secondary income is pay-ments made
abroad or re-ceived from abroad such as payments made that are not in exchange for a good or
service, like foreign aid, gifts, or the remittances (the transfer of wages earned in one country to
residents of an-other country) of immi-grants temporarily resid-ing in another country.
Question:
18. Which of the following is an example of a financial derivative?
A) An option to purchase stock in the future
B) A share of stock in Microsoft
C) A U.S. government bond
D) Monetary gold
, Answer:
A) An option to purchase
stock in the future
Question:
19. All of the following are true about foreign direct in-vestment (FDI) and portfolio investment
except
A) increases in the flow of portfolio investments in-
crease the likelihood of financial crisis.
B) both portfolio investments and FDI are the same in
that they both give their holders a claim on the future output of the foreign economy.
C) FDI is relatively illiquid compared to portfolio invest-
ment.
D) FDI changes very little from year to year.
Answer:
D) FDI changes very little
from year to year.
Question:
20. Capital controls are most often aimed at slowing or eliminating movements of
Answer:
foreign portfolio invest-ment.
Question:
21. Which of the following is an example of foreign direct investment?
A) Toyota builds an automobile plant in Ohio.
B) The Bank of Japan buys dollars.
C) A citizen of Japan buys stock in Microsoft.
D) A citizen of Japan buys a U.S. government bond.
Answer:
A) Toyota builds an auto-
mobile plant in Ohio.
Question:
22. Which of the following is an example of portfolio in-vestment?
A) Toyota builds an automobile plant in Ohio.
B) The Bank of Japan buys dollars.
C) A citizen of Japan buys stock in Microsoft.
D) A citizen of Japan buys an option to purchase Mi-
crosoft stock in the future.
Answer:
C) A citizen of Japan buys
stock in Microsoft.
Question:
23. Which of the following is an example of a change in reserve assets?
A) Toyota builds an automobile plant in Ohio.
B) The Bank of Japan buys dollars.
