What indicates a capital account surplus?

• A. Exports of capital exceed imports of capital
• B. Imports of capital exceed exports of capital
• C. Equal amounts of capital imported and exported
• D. A balance of trade surplus from capital goods

Answer: (B)

A capital account surplus occurs when the inflow of capital into a country exceeds the outflow of capital from that country. This is reflected in the first choice, which states that exports of capital exceed imports of capital. In contrast, a capital account surplus does not arise when imports of capital exceed exports.

The correct identification of a capital account surplus indicates that domestic investment is being financed by foreign savings, leading to a net inflow of foreign capital. This can occur through various means, such as foreign investments in domestic companies, purchases of local securities, or real estate investments. The surplus signals confidence from foreign investors in the country's economic prospects.

In terms of the other options, equal amounts of capital imported and exported would indicate a balanced capital account rather than a surplus. A trade balance surplus from capital goods refers to the balance of trade in goods and services, which is a different aspect of a country's overall economic transactions. Therefore, it's crucial to focus on the definitions and implications of capital accounts to grasp the concept of capital account surpluses effectively.