1. True or False? If the United States is importing more goods and services from Canada,...

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1. True or False? If the United States is importing more goods and services from Canada,...

1. True or False?

If the United States is importing more goods and services from Canada, this difference in balance must be paid by exchanging currencies.

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Answer 1

Answer #1

The correct answer is "False"

Explanation -

The difference in balance is not paid by exchanging currencies. Rather, when the US is importing more goods and services from Canada, the country of Canada builds excess dollar reserves. This dollar is used to purchase assets in the United States (typically Treasury bonds).

Therefore, the United States will sell assets (Treasuries) that generates a liability and obligates the United States to pay for the excess imports in the future.

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Answer 2

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