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Suppose a Portuguese Citizen Travels to Tanzania to Go on a Safari

Question 97

Multiple Choice

Suppose a Portuguese citizen travels to Tanzania to go on a safari and uses euros for the transaction. Tanzania then uses the euros to purchase wine from Portugal. How will this transaction affect Portugal's trade deficit?


A) The first transaction is recorded as an import in the current account. The second transaction is recorded as an export in the current account, so the trade deficit will not change.
B) The first transaction is recorded as an export in the current account. The second transaction is recorded as an import in the current account, so the trade deficit will not change.
C) The first transaction is recorded as an export in the current account. The second transaction is also recorded as an export in the current account, so the trade deficit will shrink.
D) The first transaction is recorded as an import in the current account. The second transaction is also recorded as an import in the current account, so the trade deficit will grow.
E) The trade deficit will be unaffected because each of these transactions affects the capital account.

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