For the Following Question Assume the Following Facts

question 103

Multiple Choice

For the following question assume the following facts:
(1) Balance of Payments = 0 prior to the transactions.
(2) Person A (who lives in the United States) purchases an airplane from British Airways for $150,000.
(3) Person A pays with a check from his account at First Union Bank in the United States.
(4) British airways, since it will need dollars in 1 month, deposits the check at the Bank of England.
(5) Bank of England deposits the $150,000 at Commonwealth bank, which is located in the United States.
Due to the transactions above, what are the effects on the balance of payments?

• A) -$150,000 due to import of good (current account debit)
• B) +$150,000 due to import of good (current account credit)
• C) -$150,000 due to deposit of Bank of England (capital account debit)
• D) +$150,000 due to deposit of Bank of England (capital account credit)
• E) No effect (150,000 current account debit and 150,000 capital account credit)

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Definitions:

Entrepreneur

An individual who creates, organizes, and operates a business or businesses, taking on financial risk to do so.

Profit

The financial gain achieved when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes.

Limited Incomes

Economic condition where individuals or households have restricted earnings, impacting their spending capabilities and living standards.

Households

The individuals or group of people living together in the same dwelling and functioning as a single decision-making economic unit, typically sharing income and expenses.