Question

See Hint Suppose the U.S government is financing its fiscal policy defic the yuan to the dollar. Which of the following statements is correct? its through the loanable funds market. At the same time, China is pegging Choose one: A. The U.S capital account is in surplus, and China's exports decrease B. The U.S capital account is in surplus, and China's exports increase C.The US current account is in deficit, and China's imports increase D. The U.S current account is in surplus,and China's exports dec crease

Answer 1

Answer:

B. The U.S capital account is in surplus, and China's exports increase

Explanation:

Fiscal policy is the ways by which the government of a nation adjusts its expenditure levels and tax rates to check and influence a nation's economy. It is the sister strategy to the monetary policy in which the apex bank(central bank) influences a nation's money supply.

Going back to the question, since there is a fiscal deficit, it is expected that the U.S capital account is in surplus, and China's exports increase.

Answer 2

Answer:

B) The U.S capital account is in surplus, and China's exports increase

Explanation:

The capital account measures the change in foreign ownership of domestic assets - domestic ownership of foreign assets.

While the current account measures exports - imports, plus net income and direct payments.

Both are part of the balance of payments (BOP) = capital account + current account. Since the BOP = 0, if the country imports more than it exports (trade deficit), the current account will be negative. That means that the capital account must be positive (to balance the equation).