ANSWER OUTLINE
ECONOMICS 353 (SECTION 2) L. Tesfatsion/Spring 00
EXERCISE SET 7: 5 POINTS TOTAL DUE: Tuesday, March 28, 2:10 P.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 2-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:
1-2. The current account for a HC in a particular year T describes
A. the total value of goods and services newly produced within the borders
of the HC in year T
B. the trade balance for the HC in year T
C C. the net payments to the HC from ROW in year T due to net exports,
net factor payments, and net transfers
D. the net payments to the HC from ROW arising from trades in financial
assets and in real assets such as real estate
2-2. Which item(s) below would be directly entered as items in the U.S.
capital account:
A. Purchases by Japanese tourists of Microsoft software newly
produced within the borders of the U.S.
B B. Purchases of U.S. real estate by a Hong Kong citizen
C. Foreign aid sent by the U.S. to Mozambique
D. Income received by U.S. holders of a Mexican bond issue
E. All of the above
3-2. A U.S. current account _____ indicates that the U.S. is _____ its
net claims on foreign income because the HC is increasing its _______ ROW.
A. balance; decreasing; borrowing from
B. surplus; decreasing; borrowing from
C. deficit; increasing; lending to
D D. deficit; decreasing; borrowing from
4-2. If the U.S. is NOT in a balance of payments equilibrium, this means
A. the sum of the current account CA and the "nonofficial" capital
account NKA is NOT equal to the net change BP in U.S. official
reserve assets.
B B. the net change BP in U.S. official reserve assets is not zero
C. The current account is not zero
D. The sum of the current account CA and the capital account KA
is not zero
E. none of the above
5-2. If the balance of payments BP is NEGATIVE, 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 B. excess demand for; decrease; buying
C. excess demand for; increase; selling
D. excess supply of; increase; selling
E. none of the above
