Under the price-specie-flow mechanism, what happens when, say, Great Britain's current account surplus is greater than its non-reserve financial account balance?
A) Great Britain's loans will finance all foreign net imports.
B) An automatic drop in Great Britain's domestic prices and rise in foreign prices.
C) Gold reserves will flow into Great Britain.
D) Gold reserves will flow out of Great Britain.
E) Great Britain will experience a deficit.

Question

Quizplus · Accepted Answer

When Great Britain has a current account surplus greater than its non-reserve financial account balance, it means that it is exporting more than it is importing and investing abroad. This surplus leads to an inflow of gold (or other reserve assets) into Great Britain, as other countries pay for British goods and investments with their gold reserves, aligning with the price-specie-flow mechanism.

Under the Price-Specie-Flow Mechanism, What Happens When, Say, Great Britain's