Balance of Payments
172 questions· page 1 of 18
High economic growth is often accompanied by a worsening of the current account of the balance of payments.
Which reason for this trend is not valid?
Options
A Economic growth raises domestic consumption, leaving very little to sell to overseas consumers.
B Economic growth raises domestic output, leading to lower prices and more price-competitive goods both at home and abroad.
C Economic growth raises incomes and leads to rising demand for foreign goods.
D Economic growth results in rising requirements of inputs from other countries.
A country experiences a rising trade deficit and a current account surplus at the same time.
Which combination of events might explain this?
Options
| Event 1 | Event 2 | |
|---|---|---|
| A | a global recession resulting in decreased prices of commodities | Gross National Income (GNI) rises faster than Gross Domestic Product (GDP) |
| B | increased subsidies for exporters | increased donations received from abroad to combat a humanitarian crisis |
| C | removal of restrictions on imports | removal of restrictions on the remittance of profits of foreign-owned producers |
| D | rising imports of machinery to help raise exports in the future | increased secondary income from workers' remittances from abroad |
A country has a persistent deficit on the current account of its balance of payments.
What is most likely to improve the situation in the long run?
Options
A a lowering of the level of import duties
B a reduction in the level of income tax
C the introduction of expansionary monetary policy
D the use of grants to encourage new investment by firms
Primary income and secondary income are components of the current account of the balance of payments.
Which option correctly identifies an example of primary income and secondary income?
Options
| primary income | secondary income | |
|---|---|---|
| A | government transfers | income from profits earned abroad |
| B | income from profits earned abroad | dividends earned on foreign shares |
| C | income from profits earned abroad | government transfers |
| D | workers' remittances | income from profits earned abroad |
What is most likely to lead to a persistent surplus in a country’s current account of its balance of payments?
Options
A a low domestic savings rate
B an undervalued exchange rate
C highly protectionist policies by other countries
D low investment income from abroad
A country is experiencing a deficit on the current account of its balance of payments.
Which policy decision could reduce the deficit?
Options
A decrease in income tax rates
B increase in exchange rates
C increase in government spending
D increase in import tariffs
A country has a deficit on the current account of the balance of payments.
What would be expected to increase the deficit?
Options
A an appreciation of the exchange rate
B an increase in domestic productivity
C an introduction of import quotas
D a rise in subsidies to domestic firms
An Australian family purchases a holiday to New Zealand and an Australian mining company sells coal to China.
Four students, A, B, C and D, are asked where these transactions appear in the current account of Australia’s balance of payments.
Which student is correct?
Options
| holiday to New Zealand | coal to China | |
|---|---|---|
| A | service export | good export |
| B | service export | good import |
| C | service import | good export |
| D | service import | good import |
A government believes its current account deficit will be beneficial in the long run.
What is the most likely reason for this?
Options
A Immigration has increased.
B It imports capital goods.
C It exports raw materials.
D It reduces unemployment.
A country has a current account deficit.
What would be classified as a protectionist measure to restore the current account to equilibrium?
Options
A allow the exchange rate to appreciate
B increase income tax
C increase import tariffs
D increase the rate of interest