Suppose Grovner's exports equal $950 billion, its imports equal $1,000 billion, and
Purchases of foreign assets by its citizens equals $900 billion. What is the value of Grovner's
Assets purchased by foreigners?

Question

Quizplus · Accepted Answer

To find the value of Grovner's assets purchased by foreigners, we need to use the balance of payments equation:
Current Account + Capital Account = 0
or
Exports - Imports + Net Income from Abroad + Net Current Transfers to Abroad + Capital Account Transactions = 0
Since purchases of foreign assets by its citizens are part of the capital account, we can find the value of assets purchased by foreigners as:
Assets purchased by foreigners = (Exports - Imports) + (Net Income from Abroad + Net Current Transfers to Abroad) - (Purchases of foreign assets by Grovner's citizens)
Assets purchased by foreigners = ($950 billion - $1,000 billion) + 0 - $900 billion
Assets purchased by foreigners = -$50 billion
However, since the question asks for the value of assets purchased by foreigners (and not their net purchase), we take the absolute value, which is $50 billion. Therefore, the answer is C) $850 billion.

Suppose Grovner's Exports Equal $950 Billion, Its Imports Equal $1,000