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AP Macroeconomics
Unit 6: Open Economy—International Trade and Finance
6.1 Balance of Payments Accounts
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Cards (28)
What is the Balance of Payments (BOP)?
Record of economic transactions
Primary income in the Current Account includes income received from or paid to foreign
countries
Match the Capital and Financial Account component with its description:
Capital Transfers ↔️ Related to fixed assets or debt forgiveness
Foreign Direct Investment ↔️ Investments in foreign entities for control
Portfolio Investment ↔️ Purchase of stocks and bonds in foreign markets
Other Investments ↔️ Loans and other financial assets
If a country has a Current Account surplus, it must have a Capital & Financial Account
deficit
True
Exports of goods are included in the
Current Account
True
The Current Account represents the flow of goods, services, and
income
What does a Current Account surplus indicate for a country?
Inflow of funds
The Balance of Payments (BOP) is a record of all economic transactions between residents of a country and the rest of the
world
The Current Account components represent the flow of goods, services, and income between a country and the rest of the world.
True
If a country exports more goods than it imports, it has a Current Account surplus and a
Capital & Financial Account
deficit.
True
If the US dollar depreciates against the euro, American goods become more affordable for European buyers.
True
The Balance of Payments (BOP) is divided into two main accounts: the Current Account and the Capital & Financial
Account
Order the components of the Current Account based on their typical contribution to a country's trade balance:
1️⃣ Goods
2️⃣ Services
3️⃣ Primary Income
4️⃣ Secondary Income
Foreign Direct Investment (FDI) involves purchasing stocks in foreign markets
False
The relationship between the Current Account and Capital & Financial Account ensures overall financial
stability
The Current Account and Capital & Financial Account offset each other to ensure the overall Balance of Payments is
balanced
A depreciation of the US dollar against the euro can increase US exports and reduce
US imports
.
True
Match the Current Account component with its description:
Goods ↔️ Exports and imports of physical merchandise
Services ↔️ Exports and imports of intangible services
Primary Income ↔️ Income received from foreign countries
Secondary Income ↔️ Unilateral transfers
What are the two main accounts of the Balance of Payments?
Current and Capital & Financial
The Current Account and Capital & Financial Account offset each other to ensure the Balance of Payments is
balanced
Match the scenario with its impact on the Balance of Payments:
Trade surplus ↔️ Deficit in the Capital & Financial Account
Excess earnings invested abroad ↔️ Maintains overall BOP equilibrium
The 'Goods' component of the Current Account includes exports and imports of physical
merchandise
Order the following impacts of Current Account surpluses and Capital & Financial Account deficits:
1️⃣ Current Account surplus: Inflow of funds
2️⃣ Capital & Financial Account deficit: Outflow of funds
3️⃣ Overall Balance of Payments: Zero
Arrange the following impacts of exchange rate changes on exports and imports:
1️⃣ Currency Depreciation: Exports become cheaper
2️⃣ Currency Depreciation: Imports become more expensive
3️⃣ Currency Appreciation: Exports become more expensive
4️⃣ Currency Appreciation: Imports become cheaper
A country with a trade surplus might invest its excess earnings abroad, creating a deficit in the
Capital & Financial Account
.
True
Match the component of the Capital and Financial Account with its description:
Capital Transfers ↔️ Forgiveness of debt
Foreign Direct Investment ↔️ Investment to control foreign entities
Portfolio Investment ↔️ Purchase of stocks and bonds
Other Investments ↔️ Loans and financial assets
The Balance of Payments (BOP) is influenced by factors such as exchange rates, trade policies, inflation rates, income levels, and government
debt
Current Account surpluses can boost economic growth, while deficits may slow growth due to increased
imports