A country that sells more to other nations than it buys from them runs a surplus in its balance of trade.
Missing Word
surplus
A trade surplus means exports exceed imports. It is matched by a net outflow of financial capital, as the country lends to or invests in the rest of the world.
Category: Measuring Trade Balances
Question 2
When government spending exceeds tax revenue, the budget is in deficit, and the government must borrow financial capital to cover the gap.
Missing Word
deficit
A budget deficit means public saving is negative, so the government must borrow. In the national saving and investment identity, that borrowing competes with private investment for available funds.
Category: Saving and Investment Identity
Question 3
Products that a country's residents buy from producers in other countries are called imports.
Missing Word
imports
Imports are goods and services purchased from abroad. When they exceed exports, the country runs a trade deficit.
Category: Measuring Trade Balances
Question 4
When a tourist from Japan pays for a hotel room in Chicago, the United States records the payment as a service export.
Missing Word
export
Spending by foreign visitors brings money into the country in exchange for a service delivered there, so it counts as an export. Travel and tourism are an important category of service trade.
Category: Current Account Parts
Question 5
In the market for financial capital, a government that borrows to cover a budget shortfall adds to the demand side, competing with firms that want funds for new equipment.
Missing Word
demand
In the national saving and investment identity, the demand for financial capital comes from private investment and government borrowing, while the supply comes from private saving and inflows from abroad. Government borrowing therefore adds to demand, while a budget surplus adds to supply.
Category: Saving and Investment Identity
Question 6
A country that invests more abroad than foreigners invest in it experiences a net outflow of financial capital.
Missing Word
outflow
When residents buy more foreign assets than foreigners buy of theirs, funds leave the country on net. This outflow is the financial side of a trade surplus.
Category: Financial Capital Flows
Question 7
Banking, software, consulting, and legal advice sold to foreign buyers are traded as services rather than goods.
Missing Word
services
Services are intangible and can often be delivered electronically. They are included in the balance of trade and the current account but not in the merchandise trade balance.
Category: Current Account Parts
Question 8
One-way sums sent abroad with nothing received in return, such as foreign aid, are called unilateral transfers.
Missing Word
unilateral
Unilateral transfers include government aid, charitable donations and money individuals send to relatives in other countries. They are one of the four parts of the current account.
Category: Current Account Parts
Question 9
Spending by firms on new factories, machinery, and equipment is called investment, and it draws on the supply of financial capital.
Missing Word
investment
Investment is the demand for financial capital in the national saving and investment identity. When it exceeds domestic saving, the gap is filled by foreign capital.
Category: Saving and Investment Identity
Question 10
Far more money leaves the United States as government aid, charitable gifts and sums immigrants send home than arrives as such one-way payments, so the U.S. balance on these transfers is almost always negative.
Missing Word
negative
Unilateral transfers are payments sent abroad with nothing received in return. For the U.S. economy far more of them leave than arrive, so the transfers line of the current account is almost always negative and adds to the current account deficit.
Category: Current Account Parts
Question 11
The broadest measure of a nation's trade, which adds earnings on assets owned abroad and one-way transfers to the balance of trade, is called the current account.
Missing Word
current
The current account balance combines trade in goods and services with net international income flows and net unilateral transfers, so it is broader than the trade balance. A current account deficit means the country is a net borrower from the rest of the world.
Category: Measuring Trade Balances
Question 12
When households and firms spend less than their income, the difference is called saving, and it supplies financial capital.
Missing Word
saving
Private saving is the main domestic source of financial capital. In the national saving and investment identity, saving plus foreign capital inflows must equal investment plus government borrowing.
Category: Saving and Investment Identity
Question 13
An equation that holds by definition, true in every year for every country whatever people choose to do, is called an identity; one example is S + (M - X) = I + (G - T).
Missing Word
identity
An identity is true because of how its terms are defined, not because of any theory about behavior. In the national saving and investment identity, the financial capital supplied by private saving and the trade deficit must equal the financial capital demanded for investment and government borrowing.
Category: Saving and Investment Identity
Question 14
When a U.S. corporation pays dividends to its shareholders in Japan, the payment is recorded as income flowing out of the United States.
Missing Word
dividends
Dividends are the share of company profits paid to stockholders. Payments to foreign owners of U.S. assets are income payments that flow out of the United States.
Category: Current Account Parts
Question 15
Dividing a trade balance by GDP removes the effects of economic growth and inflation, so different years can be compared fairly.
Missing Word
inflation
Dollar values rise over time partly because prices rise and the economy grows. Expressing a trade balance as a share of GDP corrects for both, putting each year's balance in proportion to the economy.
Category: Measuring Trade Balances