Question

Question 18

1. If a country experiences a surge of exports that leads to greater trade surplus, what must happen to this country's financial account to maintain its balance of payments, all else equal?

   	a.	The financial account balance will decrease.
   	b.	The financial account balance will be unchanged.
   	c.	The financial account balance will increase.
   	d.	The financial account balance is unrelated to the current account and can change in any direction.

3.33 points

Question 19

1. Suppose that Tesla (an American automobile manufacturer) opens a manufacturing plant in the Netherlands. How would this affect the U.S. balance of payments, all else equal?

   	a.	The U.S. current account will decrease.
   	b.	The U.S. financial account will decrease.
   	c.	The U.S. financial account will remain unchanged.
   	d.	The U.S. financial account will increase.

3.33 points

Question 20

1. Which of these would cause a country's current account deficit to rise?

   	a.	an increase in the country's trade balance
   	b.	the profit earned by American automakers in China is brought back to the United States
   	c.	an increase in remittances from migrant workers sending money to their families in Mexico
   	d.	Apple opening more retail stores in China

Answer 1

1 - Option D

The financial account is unrelated to current account and can change in any direction

There is no asset or liability involved , hence this is not the transaction of the financial account. These two accounts are not related to each other and hence no change will be seen in financial account. Hence option D will be correct.

2 - Option C

US financial account will remian unchanged

This is because the given event will be outflow of capital and will be shown on debit side in the capital account and will not be recorded in current or financial account

3 - Option C

An increase in remitances from migrant workers sending money to their families in Mexico

This is the unilateral outflow and hence will be recorded on debit side in current account of BOP. Since it is a negative item , it will increase the deficit of current account . Option B will lead to fall in deficit. Option D is a part of capital account. Hence Option C will be correct.