2. If a country runs a trade balance surplus, will it necessarily be accumulatin

Question

2. If a country runs a trade balance surplus, will it necessarily be accumulating net foreign assets? (a) No, it will be necessarily running down its net foreign assets. (b) Yes, the change in net foreign assets is equal to the trade balance surplus. (c) Not necessarily. If the country has negative investment income, it might run a current account de?cit in spite of its trade balance surplus. (d) Not necessarily. If the country receive large payments for the work of its citizens abroad, it might run a current account de?cit in spite of its trade balance de?cit. (e) None of the above.

Explanation / Answer

(c) Not necessarily. If the country has negative investment income, it might run a current account de?cit in spite of its trade balance surplus. because A current account surplus increases a country's net foreign assets by the corresponding amount, ... A Nation is said to have a trade deficit if it is importing more than it exports. ... If an economy is running current account deficit

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