A deficit in the U.S.current account is offset by a surplus
A) in the U.S. trade account.
B) in the U.S. balance-of-payments.
C) in the U.S. capital and financial account.
D) in the U.S. official reserve assets.

Question

Quizplus · Accepted Answer

The current account measures the trade balance (exports minus imports of goods and services), income payments, and unilateral transfers. A deficit in the U.S. current account means that the U.S. is importing more than it is exporting, which implies a surplus in the trade account. However, this deficit must be offset by a surplus in the capital and financial account, which measures changes in ownership of assets and liabilities. This surplus represents foreign investment in the U.S. and is necessary to finance the current account deficit. Option D is incorrect because official reserve assets are a component of the capital and financial account and are used to finance a balance-of-payments deficit, not a current account deficit.

A Deficit in the U