The balance-of-payments identity shows that the value of:
A) net exports equals the net capital outflow.
B) the net capital inflow equals the net capital outflow.
C) imports equals exports.
D) payments from a country exceeds payments to a country.

Question

Quizplus · Accepted Answer

The balance-of-payments identity is defined as the sum of a country's current account and capital account balances equals zero. This can be algebraically shown as Current Account + Capital Account = 0. Net exports, which form a part of the current account, represent the difference between a country's exports and imports. Net capital outflow represents the difference between a country's domestic saving and domestic investment. Therefore, the balance-of-payments identity implies that net exports must equal net capital outflow (i.e., A is the correct choice). B is incorrect because net capital inflow is the opposite of net capital outflow. C is incorrect because imports and exports are not the same. D is incorrect because payments from and to a country should be equal in a balanced environment.

The Balance-Of-Payments Identity Shows That the Value Of