Question 1

Which of the following transactions would be recorded as a credit item in Canada’s balance of payments?

Accepted Answer

A Canadian firm exports lumber to the United States.

Question 2

If Canada’s current account balance (CA) is $$-55.5$$ billion and its capital and financial account balance (KA) is $$45.8$$ billion, what is the statistical discrepancy?

Accepted Answer

$$9.7$$ billion

Question 3

Which of the following best describes the relationship between saving, investment, and the current account in an open economy?

Accepted Answer

$$S_d = I_d + CA$$

Question 4

Suppose Canada has a current account deficit. What does this imply about its net foreign asset position?

Accepted Answer

Canada is reducing its net foreign assets.

Question 5

If Canada’s exports of goods and services are $$713.4$$ billion and its imports are $$756.9$$ billion, what is the value of net exports ($$NX$$)?

Accepted Answer

$$-43.5$$ billion

Question 6

Which of the following is included in the capital and financial account but NOT in the current account?

Accepted Answer

Direct investment in foreign companies

Question 7

If Canada’s official settlement balance increases, which of the following must be true?

Accepted Answer

Financial inflows exceed financial outflows.

Question 8

Given the open-economy goods market equilibrium $$S_d = I_d + NX$$, if desired national saving is $$200$$ billion and desired domestic investment is $$180$$ billion, what is net exports ($$NX$$)?

Accepted Answer

$$20$$ billion

Question 9

Which of the following best explains why the sum of the current account and the capital and financial account must equal zero (ignoring statistical discrepancy)?

Accepted Answer

Because every transaction that affects the current account has an offsetting entry in the capital and financial account.

Question 10

If Canada imports a $$75$$ sweater from Britain and pays with a $$75$$ bond sold to Britain, what is the effect on Canada’s current account and capital account?

Accepted Answer

Current account: $$-75$$, Capital account: $$+75$$

Question 11

Which of the following is NOT a component of the current account?

Accepted Answer

Direct investment in foreign companies

Question 12

If the value of Canada’s foreign assets increases due to a current account surplus, what happens to its net foreign asset position?

Accepted Answer

It increases.

Question 13

Suppose Canada’s current account balance is $$-55.5$$ billion and the capital and financial account balance is $$45.8$$ billion. What does this imply about the statistical discrepancy?

Accepted Answer

$$9.7$$ billion

Question 14

Which of the following would be recorded as a debit in Canada’s capital and financial account?

Accepted Answer

A Canadian bank buys U.S. government bonds.

Question 15

If $$CA + KA = 0$$, and the current account is in deficit, what must be true about the capital and financial account?

Accepted Answer

It is in surplus.

Question 16

Which of the following best describes a current transfer in the balance of payments?

Accepted Answer

The Canadian government provides economic aid to another country.

Question 17

If Canada’s net factor payments from abroad (NFP) are $$-5.2$$ billion, what does this indicate?

Accepted Answer

Canada paid more income to foreign investors than it received.

Question 18

Which of the following would increase Canada’s official settlement balance?

Accepted Answer

A purchase of foreign government securities by the Bank of Canada.

Question 19

If Canada’s desired national saving is less than its desired domestic investment, what must be true about its net exports ($$NX$$)?

Accepted Answer

$$NX is $$negative.

Question 20

Which of the following best describes the role of the statistical discrepancy in the balance of payments?

Accepted Answer

It accounts for errors and omissions in the measurement of international transactions.

The Balance of Payments: Structure, Accounts, and Macroeconomic Implications

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