If Canada imports more goods from Japan than it exports to Japan,how will the difference be financed?

Question

Quizplus · Accepted Answer

If Canada imports more goods from Japan than it exports to Japan, then it will generate a trade deficit. To finance this deficit, Canada will have to sell its assets or borrow money from foreign individuals or institutions. Option C specifies that Canada will sell assets to generate a liability, which obligates Canadians to pay for those imports in the future. Therefore, option C is the correct answer. Option A is incorrect as it assumes that Canadian consumers will borrow money from domestic banks, while the question talks about the financing of trade deficit, not consumer borrowing. Option B is incorrect as it assumes that Canada will buy more Japanese assets, which does not explain how the difference will be financed. Option D is incorrect as it assumes that Canada will sell assets to the Japanese, which does not fully explain the process of financing the trade deficit.

If Canada Imports More Goods from Japan Than It Exports