Which of the following is correct with regard to the balance of trade and the balance of payments?
A) If a country has a favourable balance of trade, it will also have a favourable balance of payments.
B) The balance of payments is computed by dividing the value of a country's currency by the number of currency transactions that took place in the previous year.
C) A country that imports more than it exports has a favourable balance of trade.
D) Countries used to strive to have a favourable balance of trade, but governments no longer worry about that issue because of globalization.
E) Canada has generally had a favourable balance of trade during the last few decades.

Question

Quizplus · Accepted Answer

The statement in option A is incorrect because the balance of trade is just a part of the balance of payments, which includes not only the balance of trade but also the balance of services, income, and current transfers. Option B is also incorrect because the balance of payments comprises all international transactions and is measured in terms of receipts and payments, not currency transactions. Option C is incorrect because a country that imports more than it exports has an unfavorable balance of trade. Option D is incorrect because although governments may no longer use protectionist measures to promote a favorable balance of trade, it remains an important economic indicator. Therefore, option E is the correct choice as it states a fact that Canada typically has a favorable balance of trade.

Which of the Following Is Correct with Regard to the Balance