If the government sector is running a deficit of $120 million and the private sector is running a surplus of $200 million, then net exports equal
A) $80 million surplus.
B) $320 million surplus.
C) $80 million deficit.
D) $320 million deficit.

Question

Quizplus · Accepted Answer

According to the sectoral balances approach, the sum of the financial balances of the private sector, government sector, and foreign sector (net exports) must equal zero. If the government sector has a deficit of $120 million and the private sector has a surplus of $200 million, the foreign sector (net exports) must have a surplus of $80 million to balance the equation. This is because the surplus in the private sector minus the deficit in the government sector equals the surplus in the foreign sector: $200 million - $120 million = $80 million surplus.

If the Government Sector Is Running a Deficit of $120