China runs a current account surplus with the United States.Which of the following must be true about China's balance of payments with the United States?
A)It must run a financial account deficit.
B)Its balance of trade must be in deficit.
C)Its net exports must be negative.
D)Its balance of payments must run a deficit.

Question

Quizplus · Accepted Answer

A current account surplus means that China is exporting more goods and services to the US than it is importing from the US. This leads to a surplus on the current account but in order to balance its overall balance of payments, China must have a deficit on its financial account. This means that China is investing more in the US than the US is investing in China, resulting in a financial account deficit. As for choices B and C, a current account surplus does not necessarily mean that there is a deficit on the balance of trade or that net exports are negative. Finally, choice D is not correct since a current account surplus does not necessarily mean that there is an overall deficit on the balance of payments - this would depend on the size of the financial account surplus/deficit.

China Runs a Current Account Surplus with the United States