İKTİSADA GİRİŞ II - Deneme Sınavı - 6

Apart from the exchange rate and exchange rate systems, balance of payments is the other main component of the monetary side of international economics. Balance of payments (BOP) of an economy is a summary statement of all the economic transactions made by the foreign currency. Balance of payments displays the economic transactions recorded during a particular period of time which is usually a calendar year.

The main function of the balance of payments is to give information to the government about the international situation of the country. Being informed about the foreign exchange transactions and international situation, the government decides on the implementation of the adequate economic policy. Furthermore, countries which would like to trade with a country might consult to the balance of payments of this prospective trade partner to see its international trade situation. Last but not least, balance of payments data is sufficient to the banks, firms and individuals who would like to make an international transaction. Thus, balance of payments provides information not only to the government but also to the trade partners, banks, firms and individuals of the country.

Balance of payments are recorded depending upon basic principles referred to balance of payments accounting principles. International transactions of an economy are classified as credits and debits. Credit international transactions are those that embrace the receipt of payments from foreigners. Debit international transactions are those that embrace the making of payments to foreigners. Credit international transactions are recorded in the balance of payments with a positive (+) sign while debit international transactions with a negative (-) sign.

As also understood from the information given, the answer is E. All of the statements in the options related to balance of payment are correct.

Balance of payments has two main accounts namely the Current Account and Capital and Financial Account. These main accounts have various sub-accounts. Current Account: It is the account which embraces the exports and imports of the commodities and services, net interest and dividend incomes and unilateral transfers. If the net result of the Current Account is negative, then, there is a Current Account deficit within the economy. On the opposite side, if the net result of the Current Account is positive, then,  there is a Current Account surplus.

Capital and Financial Account: It consists of two sub-accounts, Capital Account and Financial Account. Patent rights, intellectual property rights and licenses are recorded under the Capital Account. It constitutes the smaller part of the whole account. Financial Account is the main sub-account of the Capital and Financial Account. Foreign direct investments (FDI) and portfolio investments are recorded under the Financial Account. Foreign direct investments (FDI) are the real investments made directly to the firms, capital commodities and land. In foreign direct investments, the control on the investment is in the hands of the investor. Portfolio investments, on the other hand, are financial properties and assets such as bonds, Treasury bills and stocks. In portfolio investments, the investor expects an earning as a return of its lending. This return of earning is simply the price of its investment, the interest.

As also understood from the information given, the answer is E. All of the definitions in the options related to main accounts and functioning of balance of payments are correct.

Import is a commodity or a service purchased from foreign sources. The correct option is C.

Internal Equilibrium refers to the full employment of the economy with price stability. The correct option is D.

Autarky is the absence of international trade. At the autarky, production and consumption points are the same and they are both on the production possibilities frontier. The correct option is E.

It is acknowledged that economics as a science is born with the publication of the famous book of Adam Smith in 1776, entitled The Wealth of Nations. The correct option is C.

According to the theory of comparative advantage, even if one country is less efficient than the other country in the production of both commodities, there is still a basis for mutually beneficial trade. e absolute disadvantaged country should specialize in the production of the commodity in which its absolute disadvantage is smaller (it is the commodity of its comparative advantage) and export its surplus to the other country then, import the commodity in which its absolute disadvantage is greater (it is the commodity of its comparative disadvantage). The correct option is A.

The standard theory of international trade does not explain the reason for the differences in the relative commodity prices in autarky. is the weakness of the standard theory is accomplished by the Heckscher-Ohlin theory. e Heckscher-Ohlin theory explains the reason for the differences in the relative commodity prices in autarky by using the factor intensity and factor abundance. The correct option is B.

Perfect competition is a market in which there are many firms each selling an identical commodity; there are many buyers; there are no restrictions on entry into and exit from the industry; firms in the industry have no advantage over potential new entrants; firms and buyers are well informed about the price of the commodity that each firm is produced. The correct option is C.

Traditional trade restriction aims refer to protecting domestic producers and collecting revenue to the treasury. The correct option is E.

The real exchange rate is the nominal exchange rate weighted by the consumer price index of the two countries. The correct option is B.

The balance of payments has two main accounts namely the Current Account and Capital and Financial Account. These main accounts have various sub-accounts, and the other mentioned terms are the sub-accounts of these main two. The correct option is A.