ECON 291 Study Guide - Quiz Guide: Interest Rate Parity, Canadian Dollar, Mexican Peso

78 views4 pages

reddonkey15

26 Jun 2018

School

Simon Fraser University

Department

Economics

Course

ECON 291

Professor

Junjie Liu

For unlimited access to Study Guides, a Grade+ subscription is required.

Econ 291 Tutorial Questions Ch.8

Name Student ID #

1. What are a trade deficit, a current-account deficit, and a financial account deficit? Is it

possible for a country to run a balance of payments deficit?

A trade deficit occurs when a country’s imports are greater than exports. A current account

deficit occurs when a country’s current account, which consists of net exports, net factor

payments, and net transfers, is negative. A financial account deficit occurs when a country’s

purchases of assets abroad are greater than foreign purchases of assets in the country. It’s not

possible for a country to run a balance of payments deficit, because the balance of

payments is always zero.

2. Briefly explain in which of the three balance of payments accounts each of the following

transactions would occur:

a. An export of goods

Current account

b. A purchase of bonds

Financial account

c. A gift to someone in another country

Capital account

d. A dividend paid on stock owned in another country

Current account

find more resources at oneclass.com

Unlock document

This preview shows page 1 of the document.
Unlock all 4 pages and 3 million more documents.

Already have an account? Log in

Document Summary

A trade deficit occurs when a country"s imports are greater than exports. A current account deficit occurs when a country"s current account, which consists of net exports, net factor payments, and net transfers, is negative. A financial account deficit occurs when a country"s purchases of assets abroad are greater than foreign purchases of assets in the country. Financial account: a gift to someone in another country. Capital account: a dividend paid on stock owned in another country. Ch. 8: the table below represents the balance of payments for a small economy. Calculate the missing values in the table and briefly explain how you arrived at your answers. With a strong yen, it takes more foreign currency to purchase yen. So japanese automobiles become more expensive to foreigners. By moving production to a country with a weaker currency, the production cost would decrease. Ch. 8: suppose that the inflation rate in canada is 5%, and the inflation rate in mexico is 8%.

Related Questions

Balance of payments: Using the following data for a given year, calculate

Item	Value
The rise in the country's private financial assets abroad	623
Imports of merchandise	782
Investment income, net	-27
Transfers, net	-15
Export of services	504
Rise in foreign private financial assets in the country	580
Exports of merchandise	903
Rise in foreign governments financial assets in the country	224
Imports of services	735
Rise in-country government s financial assets abroad	29

(a) The current account balance.

(b) The financial account balance.

viridianmosquito185

In the short run, a tighter monetary policy by the U.S. Federal Reserve leads to:

Select one:

a. an increase in the supply of dollars and a dollar depreciation.

b. a decrease in the supply of dollars and a dollar appreciation.

c. an increase in the demand for dollars and a dollar depreciation.

d. a decrease in the demand for dollars and a dollar appreciation.

Which theorem states that exchange rates will adjust until the prices of goods in different countries approximate one another?

Select one:

a. purchasing power parity

b. the law of multiple prices

c. the principle of comparative advantage

d. dollarization

A country's balance of trade is the difference between its:

Select one:

a. nominal and real exchange rates.

b. monetary and fiscal policy.

c. exports and imports.

d. capital inflow and capital outflow.

When a foreign business buys stock in a U.S. company, the U.S. capital account will:

Select one:

a. move in a positive direction.

b. move in a negative direction.

c. remain unchanged.

d. become more volatile.

Saying that the United States is running a large current account deficit is equivalent to saying that:

Select one:

a. exports exceed imports in the United States.

b. the United States is running a large capital account surplus.

c. the balance of payments is negative.

d. the value of the current capital stock in the United States exceeds the value of future capital flows.

10-

An increase in the demand for a country's exports will have what effect on its currency?

Select one:

a. Its value will not change.

b. Its value will increase.

c. Its value will decrease.

d. Its value will depreciate.

11-

When the United States has a current account deficit, the U.S. capital account:

Select one:

a. will have a deficit also.

b. will be balanced.

c. will have a surplus.

d. must be falling.

12-

Which of the following is NOT a way that a country can finance a trade deficit?

Select one:

a. increased borrowing

b. sale of assets

c. decreased exports

d. reduction in cash reserves

13-

A trade deficit occurs when the value of a country's:

Select one:

a. imports exceeds the value of its exports.

b. exports exceeds the value of its imports.

c. inflow of foreign capital exceeds the outflow of domestic capital.

d. outflow of domestic capital exceeds its inflow of foreign capital.

14-

Which of the following is a U.S. current account transaction?

Select one:

a. Selling a computer chip to a resident in Europe.

b. Buying stock shares of a Canadian company.

c. Selling U.S. dollars in exchange for euros.

d. A foreign investor's purchase of a manufacturing plant in the United States.

15-

An exchange rate is:

Select one:

a. a yearly summary of all the economic transactions between residents of one country and residents of the rest of the world.

b. the sum of the balance of trade, net income on capital held abroad, and net transfer payments.

c. the price of one currency in terms of another currency.

d. a currency whose value is not pegged but governments will intervene extensively in the market to keep the value within a certain range.

amethysthedgehog627

Greece has a GDP of some 200 billion euros, with exports of about 40 billion euros and imports of about 50 billion euros. Assume net unilateral transfers are zero, and the statistical discrepancy in the balance of payments is zero.

Show your calculations and answers after each sub-part to this question:

a. What is Greece's expenditure on the sum of consumption (C), investment (I) and government purchases (G)?

b. What is Greece's current account balance?

c. What is Greece's current account balance as a percentage of GDP?

d. What is Greece's balance on the capital & financial account of the balance of payments?

e. Greece's government sector budget deficit this year is 2.0% of GDP. What is the balance of private sector saving and investment, as a percentage of GDP?

f. Last year Greece's foreign debt was 325 billion euros. Based on your answers to the above questions, what will Greece's foreign debt be this year?

harlequintrout221

ECON 291 Study Guide - Quiz Guide: Interest Rate Parity, Canadian Dollar, Mexican Peso

Document Summary

Get access

Related Documents

ECON 1BB3 Chapter 16: ECON 1BB3- Chapter 16

EC250 Chapter Notes - Chapter 5: Shortage, Capital Market, Loanable Funds

ECON 2010 Chapter : ECON 2010 Ch 15 Notes

Related Questions