Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The capital and financial account must increase
B
The current account must remain unchanged
C
The trade balance will improve automatically
D
The overall economic output must decrease
Understanding the Answer
Let's break down why this is correct
Answer
When a country's net exports decrease, it means that it is exporting less than it is importing. To keep the balance of payments stable, other parts of the economy must adjust. For example, if a country is buying more goods from abroad but selling less, it might attract more foreign investment or borrow money from other countries to balance the financial accounts. This adjustment helps ensure that the total money coming in and going out remains equal. So, if net exports drop, the country might need to either increase foreign investments or reduce its imports to maintain balance.
Detailed Explanation
When net exports go down, it means the country is selling less to other countries. Other options are incorrect because Some might think that the current account can just stay the same; It's a common mistake to think that the trade balance will fix itself.
Key Concepts
Balance of Payments
Current Account vs. Capital Account
Net Exports
Topic
Balance of Payments Adjustments
Difficulty
easy level question
Cognitive Level
understand
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