Suppose initially Canada has all its international payments accounts in balance no surplus or deficit).Then Canadian firms increase the amount they import from Japan, financing that increase by borrowing from Japan.Everything else remaining the same, there will now be a current account
A)surplus and a capital and financial account surplus.
B)surplus and a capital and financial account balance.
C)deficit and a capital and financial account surplus.
D)surplus and a capital and financial account deficit.
E)deficit and a capital and financial account deficit.

Question

Quizplus · Accepted Answer

When Canadian firms increase imports from Japan and finance this by borrowing from Japan, it leads to a current account deficit (due to increased imports) and a capital and financial account surplus (due to borrowing from Japan, which is a capital inflow).

Suppose Initially Canada Has All Its International Payments Accounts in Balance