Question

For each of the following 4 changes (other things equal), has the value of the country's current account balance increased (become more positive of less negative), decreased (become less positive of more negative) or stayed the same?

1-Net foreign investment of the country increases.

A-Stay the same

B-Decrease

C-None of the above

D-Increase

2- Exports of goods and services increases by $10m and imports of goods and services increases by $10m.

		A-Increases
		B-Decreases
		C-Stays the same
		D-None of the above

3- National expenditures of goods and services increase by  $150 billion and production of goods and services increases by $100 billion.

		A-Increase
		B-Decrease
		C-Stay the same
		D-None of the above

Answer 1

The current is one of the four components of the balance of payments of the country. The current account takes into account the transactions of good, service, income and current transfers to the rest of the world. The current account helps to realize that the country has a trade defecit or trade surplus.

2. In this situation the outflow(export) of goods and services is equally compensated with the inflow(imports) of goods and services so the currrent account balance stays the same.

3. The national spending and the incrase in the production of goods and services has no direct effect on the trade balance. So it is none of the above

1. Net foreign investment is the difference between the total amount of investment done in the foreign economy by domestic people and the investment made in the domestic economy by the foreign people.