Because the trade balance is the difference between GDP and GNE, the long-run budget constraint for a nation becomes:
A) its initial wealth minus depreciation plus investment.
B) the present value of: the sum of its GDP, minus its GNE, plus its initial external wealth (or minus its initial debt).
C) the value of real assets plus foreign currency reserves plus new investment.
D) the present value of domestic production of capital goods plus exports.

Question

Quizplus · Accepted Answer

The long-run budget constraint for a nation is the present value of the sum of its GDP, minus its GNE, plus its initial external wealth (or minus its initial debt). This is because GDP represents the value of all goods and services produced domestically, while GNE represents the value of all goods and services consumed domestically. The difference between GDP and GNE represents the net amount of goods and services that are either exported or imported. The initial external wealth of a country includes its foreign currency reserves and any debt it owes to other nations. Therefore, the long-run budget constraint is the present value of the net flow of goods and services, plus the value of the country's initial external wealth or debt.

Because the Trade Balance Is the Difference Between GDP and GNE