A Japanese insurance company purchases U.S. government securities. From the perspective of the United States, the balance of trade with Japan will _____ and the balance of payments with Japan will _____.

Question

Quizplus · Accepted Answer

The purchase of U.S. government securities by a Japanese insurance company does not involve the exchange of goods or services, and therefore does not affect the balance of trade between the U.S. and Japan. However, since the Japanese insurance company is effectively sending U.S. dollars back to the U.S. in exchange for the securities, this transaction improves the balance of payments between the U.S. and Japan.

A Japanese Insurance Company Purchases U