Scenario: There are two countries-Country X and Country Y-that trade only with each other. During a particular year, the residents of Country X purchased buildings worth $10 billion in Country Y. None of the other transactions between the two countries during that year involved the purchase or sale of assets.
-Refer to the scenario above.Based on this information,it can be concluded that ________.

Question

Quizplus · Accepted Answer

Since the residents of Country X bought buildings worth $10 billion from Country Y, this is a current account transaction involving the purchase of goods (buildings) from Country Y. As a result, Country X experienced a current account deficit (since they spent $10 billion more than they earned from trade with Country Y). However, since none of the other transactions between the countries involved the purchase or sale of assets, it can be concluded that Country X did not have any financial account transactions with Country Y (i.e. no investment flows in or out). Therefore, the overall balance of payments for Country X must have been a current account surplus (offsetting the deficit from the building purchases).

Scenario: There Are Two Countries-Country X and Country Y-That Trade