If a small open economy is in long-run equilibrium with no foreign debt:
A) its balance of trade is positive.
B) its balance of trade is zero.
C) its balance of trade is negative.
D) not enough information is given to determine the sign of the trade balance.

Question

Quizplus · Accepted Answer

If a small open economy is in long-run equilibrium with no foreign debt, it means that its savings and investments are equal, which implies that its balance of trade is zero. The value of its exports is therefore equal to the value of its imports, resulting in a balance of trade of zero.

If a Small Open Economy Is in Long-Run Equilibrium with No