Suppose the balance on the current account is +$100 billion and the balance on the capital account is −$1 billion. The balance on the ﬁnancial account is
A) +$101 billion.
B) −$100 billion.
C) −$99 billion.
D) −$101 billion.

Question

Quizplus · Accepted Answer

The Balance of Payments (BOP) identity states that:

Current Account + Capital Account + Financial Account = 0

Therefore, if we have:

Current Account = +$100 billion
Capital Account = −$1 billion

We can solve for the Financial Account:

Financial Account = − (Current Account + Capital Account)
Financial Account = − (+$100 billion - $1 billion)
Financial Account = −$99 billion

Therefore, the balance on the financial account is −$99 billion.

Suppose the Balance on the Current Account Is +$100 Billion