If a French company exports $2 million of machinery to Italy and French tourists spend $2 million at Italian beaches,the Italian current account balance ________,and the Italian financial account balance ________.

Question

Quizplus · Accepted Answer

The current account balance is the balance of trade in goods and services, so the $2 million of machinery exports and $2 million of tourist spending offset each other. Therefore, the current account balance is unchanged. The financial account balance deals with capital flows between countries, and since there is no information given about capital flows, it cannot be determined whether it rises or is unchanged. Therefore, the best answer is C, is unchanged; is unchanged.

If a French Company Exports $2 Million of Machinery to Italy