If U.S. residents purchase $450 billion of foreign assets and foreigners purchase $575 billion of U.S. assets, then the U.S. has net capital outflows of -$125 billion and a trade deficit of $125 billion.

Question

Quizplus · Accepted Answer

Net capital outflows are calculated as the difference between the purchase of foreign assets by U.S. residents and the purchase of U.S. assets by foreigners. A negative net capital outflow of -$125 billion indicates a capital inflow, which corresponds to a trade deficit of the same amount.

If US Residents Purchase $450 Billion of Foreign Assets and Foreigners