Question

(2) Why does a country's current account balance and capital account balance have equal size but opposite signs numerically?

(3) Defend or refute the following statement: President Trump's tariffs upon Chinese imports and sanctions against Russia, Iran and countries that do business with these two countries are in the best interest of U.S. workers and businesses.

Answer 1

2) Current account record the trade of visibles, invisibles and transfer payments and investment income. Capital account records the changes in assets and liabilities position of the country. It records the inflow and outflow of capital. Inflow is represented by positive sign and outflow is shown by negative sign. The sum of current account and capital account in BoP must be zero. So if current account is positive, it means that there is suplus in current account and the country is a 'net lender'. That means there is an outflow of capital, and the amount is recorded in the capital account with a negative sign. So a positive current account is matched by a negative capital account of the same amount. Whereas if current account is negative it means that the country is a net borrower. So there is inflow of capital that is recorded in the capital account with a positive sign. So a negative current account is matched by a positive capital account of the same amount. Thus a country's current account balance and capital account balance have equal size but opposite signs numerically.