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When a country sends out more capital than it receives, what is the impact on its balance of payments?

1) The balance of payments will be positive
2) The balance of payments will be negative
3) The balance of payments will remain unchanged
4) The balance of payments cannot be determined

User SidK
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Final answer:

A greater outflow of capital than inflow typically results in a deficit in the financial account of the balance of payments, making the country a net borrower. The balance of payments' final outcome also depends on the current account and capital transfers, not just capital flows.

Step-by-step explanation:

When a country sends out more capital than it receives, this typically leads to a deficit in the financial account of the balance of payments, indicating that the country is a net borrower from the rest of the world. This outflow of capital could be due to the country investing more overseas than foreign investors are investing in the country, or it could be related to loans and international borrowing and lending. It's important to differentiate this from the current account, which tracks the flow of goods and services. For the balance of payments as a whole, which includes the current account, the capital and financial account, and the capital account, a capital outflow greater than the capital inflow could contribute to an overall deficit. However, it's not possible to determine the overall balance of payments solely based on capital movements because one would have to consider the current account and capital transfers as well.

User Jamie Shepherd
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