Answer to Question #209992 in Macroeconomics for Yogesh

Question

A Indian publisher sells 2000 rupees

worth of books to a resident of Brazil.By

itself this item is a credit item in the India

current account. Describe some offsetting

transaction that could ensure that the India

current accounts and the capital and

financial account balances would continue

to sum zero.

Answer 1

Offsetting transaction is the transaction that cancels out effects of another transaction.

Trade allows economics to spend more than it produces temporarily. The economy can import more than it's export and it can borrow from other countries and paying the difference makes the sum to always remain zero. Thus creating a trade deficit which creates foreign debt which must be paid in future. The main determinant of the foreign trade of any country is it's saving choices and other various investments.