For each of the statements below, explain why the statement is either TRUE or FA
ID: 1223430 • Letter: F
Question
For each of the statements below, explain why the statement is either TRUE or FALSE.
(a) “If a country’s income is less than its spending, then the country will have a surplus in its current account.”
(b) “If a country has a merchandise trade deficit, then the country must also have a current account deficit.”
(c) “If a country’s balance on current account is a net debit of $5,000, then the country’s capital/financial account balance (including all government capital/financial flows as well as all private capital/financial flows) must show a net capital/financial inflow of $5,000.”
(d) “If country A makes a unilateral transfer of $1,000 of goods to country B, then, in this time period and other things equal, country A’s merchandise trade balance will be $1,000 more positive than would otherwise have been the case. However, country A’s current account balance will be the same as would otherwise have been the case.”
Explanation / Answer
If a country earns less from the sale of its exports or spends more on imports but earns less from sale of exports, its current account is deficit. (M>X)
Trade deficit is a economic measure of negative balance of trade in which imports of a country exceeds its exports.
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