Suppose that a country has a trade surplus of $50 billion, a balance on the capital account of $10 billion,
♥ 0 |
Suppose that a country has a trade surplus of $50 billion, a balance on the capital account of $10 billion, and a balance on the current account of −$200 billion. The balance on the capital and financial account is: LO27.2 a. $10 billion. b. $50 billion. c. $200 billion. d. −$200 billion |
Here is the full solution including the answer and explanation.
Explanation
c is correct
The balance of payment is in equilibrium if the summation of the current account and financial account is zero. The deficit of $200 billion in the current account must be offset by $200 billion on the capital and financial account. This implies that assets worth $200 billion must be transferred to the foreigners to achieve equilibrium.
a is incorrect
A balance of $7200 billion would lead to a capital and financial account surplus by $7,000 billion. In this situation, more dollars would be flowing to Country U due to increased exports.
b is incorrect
A balance of $1200 billion would lead to a capital and financial account surplus by $1000 billion. In this situation, more dollars would be flowing to Country U due to increased exports.
d is incorrect
A transfer of $100 billion would not offset the current account deficit. The balance of the capital and financial account and capital account should always sum up to zero.
The Best Research Paper Writing Service
Would you want to pay someone to write your paper professionally from scratch? 100% Original and 0% AI Content!.