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Chapter 32: Problem 9

The total of our current and capital accounts (LO2) a) will always be zero b) will always be negative c) will always be positive d) may be positive or negative

Short Answer

Expert verified
The sum of the current and capital accounts may be either positive or negative, depending on a variety of factors affecting a country's economy. The balances in these accounts can vary widely, even from year to year, as economic conditions and policies change. Therefore, the correct answer is: d) may be positive or negative.

Step by step solution

01

Understanding Current and Capital Accounts

The current account is the sum of the balance of trade (exports minus imports), net income from abroad, and net current transfers. It measures the flow of goods, services, and investments between a country and the rest of the world. The capital account records the flow of financial capital, including foreign direct investment and portfolio investment. A positive value for the current or capital account indicates more inflows than outflows, and a negative value means more outflows than inflows.
02

Option a: Will always be zero

This option suggests that the total of the current and capital accounts will always balance out to be zero. In other words, every inflow of funds into a country will be matched by an equal outflow. While it is true that the balance of payments should ideally balance, this is not always the case. The balance of payments consists of the current account, the capital account, and the financial account which records changes in official reserve assets. If the balance of payments is not equal to zero, it indicates that there has been a change in the official reserve assets of the country, which means that the sum of the current and capital accounts will not always be zero.
03

Option b: Will always be negative

This option suggests that the total of the current and capital accounts will always be negative, meaning that there will always be more outflows than inflows in an economy. However, this is not necessarily true for all countries or situations. Different countries may have different balances of trade, income, and capital flows, which could lead to either positive or negative balances in their current and capital accounts.
04

Option c: Will always be positive

This option suggests that the total of the current and capital accounts will always be positive, meaning that there will always be more inflows than outflows in an economy. As with Option b, this is not necessarily true for all countries or situations. Balances in the current and capital accounts depend on a variety of factors, including a country's trade, investment, and fiscal policies, as well as global economic conditions.
05

Option d: May be positive or negative

The sum of the current and capital accounts may be either positive or negative, depending on a variety of factors affecting a country's economy. The balances in these accounts can vary widely, even from year to year, as economic conditions and policies change. Therefore, the correct answer is: d) may be positive or negative

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Most popular questions from this chapter

Today international finance is based on ( \(\mathrm{O} 3)\) a) the gold standard b) mainly a relatively free-floating exchange rate system c) fixed rates of exchange

Which of these is the most accurate statement? (LO4) a) There is no basis for the claim that the United States is living beyond its means. b) Our current account deficit is not a serious problem. c) Our trade deficit is a major economic problem. d) Since 2002 the dollar has been rising against most major currencies.

The world's leading debtor nation is \- (LO4) a) Argentina c) Mexico b) Brazil d) the United States

Which one of the following statement is the most accurate? (LO4) a) As a percentage of GDP, the United States has the highest current account surplus of any nation. b) As a percentage of GDP, the United States has the highest current account deficit of any nation. c) As a percentage of GDP, our current account deficit is roughly the same as it was 10 years ago. d) Our current account deficit is rising at an unsustainable pace.

The United States began to consistently run current account deficits since \((\mathrm{LOl}, 4)\) a) 1961 d) 1991 b) 1971 e) 2001 c) 1981
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