Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
financial account
B
trade balance
C
current account
D
foreign reserves
Understanding the Answer
Let's break down why this is correct
Answer
When a country's net exports decrease, it means that the value of its exports is less than the value of its imports. This situation negatively affects the current account, which records all transactions related to trade in goods and services. To keep the balance of payments stable, there needs to be a corresponding increase in the capital account, which tracks investments coming into the country. For example, if a country imports more than it exports and sees a drop in its current account, it might attract foreign investments or loans to balance the financial flow. This adjustment helps ensure that the overall economy remains stable despite the changes in trade.
Detailed Explanation
When net exports go down, the country earns less from selling goods abroad. Other options are incorrect because Some might think the trade balance is the answer, but it actually measures exports minus imports; This option seems close, but the current account is what decreases when net exports fall.
Key Concepts
Balance of Payments
Current Account Dynamics
Capital Account
Topic
Balance of Payments Adjustments
Difficulty
easy level question
Cognitive Level
understand
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