Which of the following combinations is plausible, as it relates to a nation's balance of payments?

Question

Quizplus · Accepted Answer

A nation's balance of payments is a record of all transactions made between entities in one country and the rest of the world over a certain period of time. The current account includes the balance of trade (exports minus imports), net income from investments, and net transfer payments. The capital account includes transactions related to non-produced, non-financial assets, such as land or buildings. The financial account includes transactions related to financial assets, such as stocks or bonds.

Option A shows a surplus in the current account and a deficit in the financial account, which is not plausible. Option C shows a surplus in all three accounts, which is also unlikely. Option D shows a surplus in the current account but a deficit in both the capital and financial accounts, which is not plausible.

Option B shows a deficit in the current account, which means that the country is importing more than it is exporting. This is offset by a surplus in the financial account, which means that the country is attracting more foreign investment than it is investing abroad. The capital account surplus means that the country is selling more non-produced, non-financial assets to foreigners than it is buying from them. This combination of deficits and surpluses is plausible and commonly observed in many countries.

Which of the Following Combinations Is Plausible, as It Relates