If the current account balance is $30 billion, and the capital and financial account balance is $35 billion, then the official settlements account balance is _________billion, and the official reserves _________

Question

Quizplus · Accepted Answer

The balance of payments (BOP) always balances out. Therefore, the sum of the current account balance and the capital and financial account balance must be equal to the official settlements account balance (OSA) and any changes in official reserves.

In this case, 
Current account balance + Capital and financial account balance = OSA + Official reserves
$30 billion + $35 billion = OSA + Official reserves

To find the OSA: 
OSA = Current account balance + Capital and financial account balance - Official reserves
OSA = $30 billion + $35 billion - Official reserves

Since the question does not provide information about changes in official reserves, we cannot definitively say what happens to official reserves. However, we can determine the direction of change for official reserves based on the OSA balance.

If the OSA balance is positive, then official reserves increase. If the OSA balance is negative, then official reserves decrease.

Substituting the values we know, 
OSA = $30 billion + $35 billion - Official reserves
OSA = $65 billion - Official reserves
OSA = -$5 billion means that official reserves decrease by $5 billion.

Therefore, the correct answer is C.

If the Current Account Balance Is $30 Billion, and the Capital