Answer
See explanation
Work Step by Step
In the U.S. balance-of-payments (BOP) statement:
- **Plus signs (+)** indicate inflows of money into the U.S. (credits).
- **Negative signs (-)** indicate outflows of money from the U.S. (debits).
### Classification of Transactions:
1. **U.S. purchases of assets abroad** → **Capital and financial account** (debit, as money flows out of the U.S.).
2. **U.S. services imports** → **Current account** (debit, as payments are made to foreign providers).
3. **Foreign purchases of assets in the United States** → **Capital and financial account** (credit, as money flows into the U.S.).
4. **U.S. goods exports** → **Current account** (credit, as money flows into the U.S. from foreign buyers).
5. **U.S. net investment income** → **Current account** (credit if positive, indicating income from foreign investments).
### Why Must the Current Account and the Capital and Financial Account Sum to Zero?
The balance of payments is based on a double-entry accounting system. Every international transaction involves an exchange of equal value between two parties, meaning:
- A **deficit in the current account** (more imports than exports) must be offset by a **surplus in the capital and financial account** (net inflows of foreign capital).
- A **surplus in the current account** (more exports than imports) must be offset by a **deficit in the capital and financial account** (net outflows of capital).
Thus, the sum of the current account and the capital and financial account must always equal zero, ensuring that all financial transactions are accounted for.
