ANSWER OUTLINE
ECONOMICS 353 (SECTION 1) L. Tesfatsion/Spring 00
EXERCISE SET 7: 5 POINTS TOTAL DUE: Tuesday, March 28, 9:30 A.M.
*IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS*
*NOTE:* Please FILL IN YOUR NAME, BIRTH DATE, AND ID (SOC SEC) No. on Side 1
of the accompanying answer sheet and write "353 SECTION 1-EXERCISE SET 7" in
the top margin of Side 1. Use a #2 pencil to MARK YOUR ANSWERS on Side 1
of the answer sheet to the following five multiple choice questions:
1-1. The capital account for a HC in a particular year T describes the
A. total value of capital goods newly produced within the borders of
the HT in year T
B. retained earnings used for investment by HC businesses in year T
C C. net payments to the HC from ROW arising from trades in financial
assets and in real assets such as real estate
D. total capital wealth of the HC in year T
2-1. Which item(s) below be directly entered into the U.S. current account:
A. Purchases by Dutch tourists of bluejeans newly produced
within the borders of the U.S.
B. Foreign aid to Poland
C. Income received by U.S. holders of a Singapore bond issue
D. A British subject's purchase of Microsoft stock from a U.S. dealer
E E. All but D
3-1. A U.S. current account _____ indicates that the U.S. is _____ its
claims on foreign income because the HC is increasing its_______ ROW.
A. balance of zero; increasing; lending to
B. surplus; decreasing; borrowing from
C C. surplus; increasing; lending to
D. balance of zero; decreasing; borrowing from
4-1. The U.S. is in a "balance of payments equilibrium" if
A. the sum of the current account CA and the "nonofficial"
capital account NKA equals the net change BP in U.S.
official reserve assets.
B. The current account CA is zero
C. The sum of the current account CA and the capital account KA
is zero
D D. the net change BP in U.S. official reserve assets is zero
E. none of the above
5-1. If the balance of payments BP is POSITIVE, this means that there is an
_______ ROW currency and the HC central bank must ________ its holdings of
ROW currency reserves by _______ HC currency in exchange for ROW currency in
order to support the current transaction plans of HC and ROW citizens.
A. excess supply of; decrease; buying
B. excess demand for; decrease; buying
C. excess demand for; increase; selling
D D. excess supply of; increase; selling
E. none of the above
