Which of the following is the value of a country's external wealth at the end of 2016 if its external wealth was -$1 billion at the end of 2015 and its trade balance was $500 million in 2016? Assume the world interest rate is 10% per annum.
A) -$1.5 billion
B) -$1.6 billion
C) -$0.6 billion
D) -$0.4 billion

Question

Quizplus · Accepted Answer

The external wealth at the end of 2016 is calculated by adjusting the initial external wealth for the trade balance and the interest on the initial wealth. Starting with -$1 billion, add the trade balance of $500 million, and then account for 10% interest on the initial -$1 billion, which is -$100 million. Thus, the final external wealth is -$1 billion + $500 million - $100 million = -$0.6 billion.

Which of the Following Is the Value of a Country's