If a Japanese company sells 200 VCRs to a French company and uses the money to buy U.S.government bonds,the Japanese merchandise trade balance ________,and the Japanese financial account balance ________.

Question

Quizplus · Accepted Answer

Selling 200 VCRs to a French company will result in an increase in export revenue, hence the merchandise trade balance will rise. However, using the money to buy U.S. government bonds will lead to a decrease in foreign exchange reserves and an increase in a foreign investment in the US, hence the financial account balance will fall. Therefore, the best choice is B (rises; falls).

If a Japanese Company Sells 200 VCRs to a French