Which scenario would increase the U.S. balance of payments deficit?

The scenario that would increase the U.S. balance of payments deficit is a decrease in purchases of U.S. securities by foreign investors. The balance of payments tracks the flow of money in and out of a country, capturing both the current account (which includes trade in goods and services) and the capital account (which includes investments). When foreign investors purchase U.S. securities, they are effectively bringing money into the U.S., which positively affects the capital account and can mitigate a payments deficit.

If there’s a decrease in these purchases, it implies that less foreign capital is entering the U.S. This reduced inflow can worsen the balance of payments deficit, as it may lead to a scarcity of foreign investment, affecting the overall financial position of the country. It is crucial to maintain a balance between incoming and outgoing funds, and a decline in foreign investment can tilt that balance towards a greater deficit. Thus, this scenario clearly demonstrates how a decrease in foreign investment can negatively impact the balance of payments.