If a European county has €25 billion in imports, €15 billion in exports, and sells €20 billion of assets to foreigners, how many foreign assets do domestic residents purchase?
A) €5 billion
B) €10 billion
C) €30 billion
D) None of the above are correct.

Question

Quizplus · Accepted Answer

The current account balance is calculated as exports minus imports, which is €15 billion minus €25 billion, or -€10 billion. To balance the current account, there must be capital inflows, which includes foreign investment in the domestic country (€20 billion) plus domestic investment abroad. Therefore, domestic residents must purchase foreign assets equal to €10 billion (€20 billion in capital inflows minus the €10 billion current account deficit). Therefore, the answer is B, €10 billion.

If a European County Has €25 Billion in Imports, €15