Answer to Question #134679 in Macroeconomics for ntapi

Question

what happens to the balance of payment of South Africa when exports exceed imports?

1. Inflow of foreign exchange.
2. Outflow of foreign exchange.
3.Balance of payment will be in equilibrium.
4. Investment will decrease.

Answer 1

 #Q134679

we have $N(x)$ = $X-m$

where $N(x) = net$ export

$X = export$

$m=imports$

Balance of payment = $Nx(y,y^1,e) + capital A/c$

balance of payment is an increasing function of net export, so as X exceed m ,this means Nx is positive, which implies that Balance of payment is in surplus, which means that we will have  inflow of foreign exchange. so option (1) is correct.