Issues at National Level

Question 1

What is a country’s balance of payments account?

Answer 1

A summary accounting of all of a country’s transactions with other countries.

Question 2

What are some of the socio-political issues associated with international trade?

Answer 2

1. Domestic unemployment linked to use of foreign labor
2. Loss of manufacturing capabilities
3. Reduction of industries essential to national defenses
4. Lack of domestic protection for start-up industries

Question 3

Distinguish the difference between import quotas and import tariffs.

Answer 3

1. Import quotas are restrictions on the quantity of goods that can be imported into a country
2. Import tariffs are taxes imposed on imported goods as a means of reducing the quantity of goods imported into a country

Question 4

Define a “balance of payments deficit”.

Answer 4

A country has a balance of payments deficit when its imports and investment outflows exceed its exports and investment inflows.

Question 5

Identify and describe the balance of payment accounts.

Answer 5

1. Current Account: Net $ amounts earned from export of goods and services, amounts spent on import of goods and services, and government grants to foreign entities
2. Capital Account: Net $ amount of inflows from investments and loans by foreign entities, amount of outflows from investments and loans U.S. entities made abroad, and the resulting net balance
3. Financial Account: Net $ amount of U.S.-owned assets abroad and foreign-owned assets in the U.S.