Suppose an American citizen purchases a TV from Sony a Japanese company) . Sony then uses the dollars to purchases U.S. Treasury bonds. How will this transaction impact the U.S. trade deficit?
A) The transaction is recorded as an export in the current account, so the trade deficit will increase.
B) The transaction is recorded as an import in the current account, so the trade deficit will increase.
C) The transaction is recorded as an export in the current account, so the trade deficit will decrease.
D) The transaction is recorded as an import in the current account, so the trade deficit will decrease.
E) The trade deficit will be unaffected because the change in the current account will be exactly offset by the change in the capital account.
Correct Answer:
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