The balance of payments is zero
A) as an accounting identity.
B) because market forces ensure that this is so.
C) only if the current account balance is zero.
D) only if the capital account balance is zero.

Question

Quizplus · Accepted Answer

The balance of payments must be zero as an accounting identity because every transaction that flows into a country must also flow out of the country in some way, ensuring that the overall balance must be zero. This means that any deficit or surplus in a country's current or capital account must be offset by a surplus or deficit in the other account. Therefore, the balance of payments cannot be zero only if the current or capital account balance is zero.

The Balance of Payments Is Zero