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US Account surplus

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Which of the following transactions would contribute to a US current account surplus and why? Make sure that you justify, in each case, why the transaction would or would not contribute to a current account surplus.

a. IBM barters computers worth $100 million to Jamaica in exchange for hotel service worth $100 million on the island.

b. The US borrows $100 million long term from Europe to buy $100 million of European goods this year.

c. The US sells arms worth $100 million to Israel for bank deposits worth $100 million.

d. The US government makes a gift of $100 million to the government of Colombia, in the form of New York bank deposits, to pay for damages caused by US bombings in heroin plantations.

e. The European Central Bank buys $100 million in US-dollar bank deposits from a New York bank, paying by providing euro bank deposits to the New York bank.

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Solution Summary

The solution considers several transaction and identifies which one contributes to the US current account surplus. A brief justification is also provided. The answer is concise and to the point.

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"Current account surplus" is Net Export reflected on the Balance of International Payments, which means if the export overpasses import, the transaction would contribute to US current account surplus.

Transaction (a) would not contribute to a US current account ...

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