Trade Flows Quiz

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Question #1

A country finds itself in the following situation: a government budget deficit of $900; total domestic savings of $200, and total domestic physical capital investment of $1300. According to the national saving and investment identity, if investment decreases by $300 while the government budget deficit and savings remain the same, what will happen to the current account balance?

A surplus increases from $200 to $500

B $200 deficit changes to $100 surplus

C $200 surplus changes to $100 deficit

D deficit decreases from $900 to $600

Question #2

Trade surpluses and trade deficits can be __________________ for an economy in certain circumstances.

A either a or b

B harmful

C neither a or b

D beneficial

Question #3

One of the following must be used as a starting point in order to perform an analysis that will determine what the connections between imbalances of trade in goods and services and the flows of international financial capital are. Which one is it?

A define the balance of trade

B sketch patterns of trade surpluses

C sketch patterns of trade deficits

D define the level of trade

Question #4

When some countries increase their imports as a result of worldwide economic growth, other countries must be increasing their:

A exports as demand in all countries substantially rises.

B trade deficits since all of their imports significantly rise.

C trade surplus since all of their exports gradually rise.

D imports, but their trade deficits gradually decrease.

Question #5

If exports ______________, then the economy is said to have a trade surplus.

A follow imports

B exceed imports

C equal imports

D precede imports

Question #6

A country’s current national savings and investment identity is expressed in algebraic terms as (M – X) = I – S – (T – G). In this instance:

A government savings are excluded.

B domestic investment is higher than domestic savings.

C domestic savings exceed domestic investment.

D the country is experiencing a trade surplus.

Question #7

Under what conditions would a nation be viewed as being neither a net borrower nor a net lender in the international economy?

A it has a high level of trade and a moderate trade deficit

B it has a medium to high level of trade and a moderate trade surplus

C its trade balance is zero

D it has a low level of trade and a large trade surplus

Question #8

A government finds itself in the following situation: a government budget deficit of $900; total domestic savings of $2000, and total domestic physical capital investment of $1300. According to the national saving and investment identity, if investment increases by $200 while the government budget deficit decreases by $100 and savings remain the same, what will happen to the current account balance?

A deficit decreases from $200 to $100

B deficit increases from $200 to $300

C current account becomes 0

D deficit increases from $200 to $400

Question #9

A series of macroeconomic events has led an economy into a deep recession. Which of the following factors is most likely to have initiated this series of events?

A level of trade

B merchandize trade imbalance

C deficit level of trade

D unbalanced trade

Question #10

Assume that the level of domestic investment in a country rises, while the level of private and public saving remains unchanged. In these circumstances:

A the rise in domestic investment will mean a higher trade surplus.

B government borrowing will increase sharply.

C the trade deficit will decline sharply.

D the rise in domestic investment will mean a higher trade deficit.

Question #11

The extent to which a national economy is involved in global trade:

A is not very strongly related to either a or b above.

B is not very strongly related to the issue of whether the economy has a substantial trade imbalance.

C is not very strongly related to the underlying economic meaning of trade imbalances.

D is very strongly related to both a and b above.

Question #12

The national saving and investment identity teaches that the rest of the economy can absorb an inflow of foreign financial capital by:

A greater government borrowing, leaving domestic saving and investment unchanged.

B leaving domestic saving and investment unchanged using any of the above.

C higher domestic investment, leaving private and public savings unchanged.

D reduced private savings, leaving domestic investment and public saving unchanged.

Question #13

One insight that can be obtained from the national saving and investment identity is that a nation’s balance of trade is determined by:

A foreign investment as part of the demand for financial capital.

B foreign investment as a part of supply of financial capital.

C all of the world government budgets and the overall global trade balance.

D each nation’s own levels of domestic saving and domestic investment.

Question #14

Which of the following represents a financial inflow to the U.S. economy?

A foreign aid from the U.S. to Ethiopia

B computer chip imports from Israel

C returns paid on U.S. financial investments in Switzerland

D oil imports from Canada

Question #15

Economists typically rely on a broader measure of international trade known as the ___________________, which includes _____________________________.

A current account balance; telecommunications, computers, finance, law, and advertising.

B current trade balance; finance, law, and software product design.

C current trade balance; foreign aid announced by the government.

D current account balance; goods, services, international income flows, and foreign aid.

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