IB Economics MCQ Revision Pack 4.6 Balance of Payments 1 Which account records the balance of trade in goods and services , income transfers, gifts and grants ? A. Balance of payments B. Capital account C. Current account D. Financial account 2 Which accoun t records the transfers of capital , debt forgiveness and transfers of non - financial assets ? A. Balance of payments B. Capital account C. Current account D. Financial account 3 Which account records the economic transactions of a country with the rest of the world per time period ? A. Balance of payments B. Balance of trade C. Capital account D. Current account 4 Which account records the inflows and outflows of money for investment in real (physical) or financial as sets ? A. The b alance of trade account B. The c apital account C. The c urrent account D. The f inancial account 5 What occurs if the sum of the balances of the current, capital and f inancial accounts is greater than zero? A. Exports of goods and services have exceeded imports for the year B. Foreign exchange reserves decline C. Foreign exchange reserves increase D. International debt rises © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 325 IB Economics MCQ Revision Pack 4.6 Balance of Payments . Total income generated through tourism is a _________ to the _________ account in the balance of payments. $ Credit, current % Credit, financial &. Debit, capital '. Debit, financial . If an American company outsources its call centre facilities to India, this is counted as a ________ in the ________ account of the USA. $ Credit, capital % Credit, current &. Debit, current '. Debit, financial . If Singaporeans invest in the US stock market and earns dividend income, this is a _________ to the Singaporean current account, and a ________ to the US current account. $ Credit, credit % Credit, debit &. Debit, credit '. Debit, debit . An overseas worker sending income back to their home country counts as a ____ ____ in the ________ account for the overseas country. $ Credit, current % Debit, capital &. Debit, current '. Debit, financial . 6tXdents oI 2verseas )amiO\ 6chooO Z hen a country makes a donation to another, it is a _________ to the ________ account of the donor country. $ Credit, current % Credit, financial &. Debit, capital '. Debit, current © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 326 IB Economics MCQ Revision Pack 4.6 Balance of Payments 1 1 If Haiti receives $1 billion from the US government in response to a natural disaster on the island , this is recorded as a ________ to its ________ account A Credit , capital B. Credit, current C. Debit, capital D. Debit , current 1 2 If Ghana is relieved of $1.5 billion of US debt, this is a _________ item to Ghanaian ’s capital account and a ______ ___ to the US A’s capital account. A Credit, credit B. Credit , debit C. Debit, credit D. Debit , debit 1 3 What happens if the total debit balance of a country’s capital account is $57 billion, and the credit balance is $72 billion ? A A c ombined balance of $129 billion exists B. A c redit balance of $15 billion exists C. A d ebit balance of $15 billion exist s D. A drain on foreign reserves occurs 1 4 Which of the following is not a component of the current account? A Balance of trade in goods and services B. Dividend income C. Grants D. Official borrowing 1 5 Which of the following does not impact the capital account? A Acquisitions and disposals of non - financial assets B. Debt forgi veness C. Donations D. Foreign direct investment 1 6 A balance of payments surplus results in fore ign exchange reserves _________ , and a balance of payments deficit leads to a _________ in reserves. A Increasing, reduction B. Incre asing, rise C. Reducing, reduction D. Reducing, rise © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 327 IB Economics MCQ Revision Pack 4.6 Balance of Payments 1 7 What does the current account equal to? A. C apital account – F inan cial account B. C apital account + F inancial account + N et errors and omissions C. F inancial account + C urrent transfers D. F inancial account + N et income 1 8 What is the name of the policies that attempt to redirect domestic spending away from imports and towards domestically produced goods and services ? A. Expansio nary demand - side policies B. Expansionary supply - side policies C. Expenditure - reducing policies D. Expenditure - switching policies 19 Increasing trade protection ___ ___ the attractiveness of imports by making them more expensive ______ t he currency makes exports relatively cheaper in global markets and therefore more competitive A. Increases, de valuing B. Increases, revaluing C. Reduces , devaluing D. Re duces, revaluing 2 0 ___ ___ fiscal and monetary polic ies can be used to reduce the ove rall level of demand and consequently cause a decrease in the demand for ___ ___ products A. Contractionary, ex po rted B. Contractionary, impo rted C. Expansio nary, ex po rted D. Expansio nary, impo rted © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 328 IB Economics MCQ Revision Pack 4.6 Balance of Payments Questions 2 1 – 30 relate to the HL Only components of Unit 4.6 of the IB Economics syllabus. 2 1 A nation running a trade deficit is likely to experience a relatively ________ currency, whereas a trade surplus suggests a relatively _______ currency. A. Strong, stable B. Strong, w eak C Weak , stab le D. Weak, strong 2 2 Which of the following is not a risk arising from continuously having a current account deficit? A. It leads to a weaker exchange rate B. I t leads to p oorer credit ratings C. It may force the central bank to lower interest rates D. The re will be i ncreased foreign ownership and control of domestic assets 2 3 A long - term current account deficit is likely to lead to a _______ currency and ________ interest rates. A. Stronger, higher B. Stronger, lower C. Weaker, higher D. Weaker, lower 2 4 A long - term financial account surplus is likely to lead to a _______ currency and ________ unemployment in the economy A. Stronger, higher B. Stronger, lower C. Weaker, higher D. Weaker, lower 2 5 Which of the f ollowing is not a valid policy option if a government wishes to reduce a current account deficit? A. Expansionary supply - side policies B. Expenditure - reducing policies C. Expenditure - switching policies D. Quantitative easing policies © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 329 IB Economics MCQ Revision Pack 4.6 Balance of Payments 2 6 With reference to the table below, what is the change in foreign reserves that the government will have to achieve? Account Credit (Debit) balance in $m Current 355 Capital (73) Financial 121 A. Decrease of $307 million B. Decrease of $403 million C. Increase of $307 million D. Increase of $403 million 27 Which of the following illustrates the Marshall - Lerner condition ? A. PED X + PED M = 1 B. PED X + PED M > 1 C. PED X + PED M < 1 D. PED + P ES > 1 28 Which of the following is not depi cted by the J - curve? A. In the long run, following a curre ncy deva luation, the current account deficit improves to a surplus B. In the long run, PED X and PED M tend to become more elastic, satisfying the Marshall - Lerner condition C. In the short run, PED X and PED M are both likely to be inelastic, and the Marshall - Lerner condition will not be satisfied D. In the short run, the current account deficit remains constant 29 According to the Marshall - Lerner condition, under what circumstances will a currency depreciation best lead to an improvement in the current account? A. Domestic demand for imports is elastic; foreign demand for exports is elastic B. Domestic demand for imports is elastic; foreign demand for exports is in elastic C. Domestic demand for imports is inelastic; foreign demand for exports is elastic D. Domestic demand for imports is inelastic; foreign demand for exports is in elastic © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 330 IB Economics MCQ Revision Pack 4.6 Balance of Payments 30 A current account surplus is likely to lead to a ( n ) __________ of the currency , which consequently _________ the trade balance. A. Appreciation, improve s B. Appreciation, worsen s C. Depreciation, improve s D. Depreciation, worsen s © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 331