Suppose Jaffe's exports equal $50 billion, its purchases of foreign assets equal $200 Jbillion, and foreign purchase of Jaffe's assets equal $100 billion. What is the value of Jaffe's
Jexports?

Question

Quizplus · Accepted Answer

Using the balance of payments equation: Current Account + Capital Account = 0.
Jaffe's Current Account balance would be:

Exports - Foreign Purchases of Jaffe's assets = $50 billion - $100 billion = -$50 billion

Therefore, Jaffe's Capital Account balance would be:

Purchases of Foreign Assets = $200 billion

Capital Account balance of $200 billion must offset Jaffe's Current Account balance of -$50 billion, so:

Capital Account = -Current Account
$200 billion = -$50 billion + X
X = $150 billion

Thus, Jaffe's exports would be $150 billion.

Suppose Jaffe's Exports Equal $50 Billion, Its Purchases of Foreign