Suppose Cavland's exports equal $400 billion and its imports equal $500 billion.
Foreigners purchased $200 billion worth of assets in Cavland. What is Cavland's
Balance on its current account?
A) $100 billion
B) -$100 billion
C) $300 billion
D) -$300 billion

Question

Quizplus · Accepted Answer

Cavland's balance on its current account is equal to its exports minus imports, which is -$100 billion. However, since foreigners purchased $200 billion in assets, this would result in a positive capital account balance of $200 billion. Therefore, the overall balance of payments for Cavland would be a surplus of $100 billion, which is represented by choice B.

Suppose Cavland's Exports Equal $400 Billion and Its Imports Equal