Suppose the Current Account of a Country Is Initially in Balance

question 109

Multiple Choice

Suppose the current account of a country is initially in balance. A new transaction occurs so that the current account is now in surplus. Official reserve balance is maintained before and after the transaction occurs. From this, we know that

• A)the balance of trade is now in surplus.
• B)the balance of goods and services is now in surplus.
• C)the capital account is now in deficit.
• D)the government must make official reserve transactions.

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Definitions:

Alfred Marshall

A British economist known for his work on microeconomics and for developing the concepts of supply and demand elasticity.

Demand Analysis

The study of consumers' willingness to purchase a particular product or service at various prices and times.

Increase in Demand

A situation where more of a good or service is sought by consumers at each price level, leading to a rightward shift in the demand curve.

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity of that good or service that suppliers are willing and able to supply to the market.