Question

How do a​ country's current account and financial account balances affect its net foreign​ assets? The net amount of new foreign assets that a country acquires equals its current account​ _____, which in turn must equal its financial account​ _____.

If country A has greater net foreign assets per citizen than does country​ B, is country A necessarily better off than country​ B?"

A. Surplus; deficit; Yes.
B. Deficit; surplus; No.
C. Surplus; surplus; No.
D. Deficit; deficit; Yes.

Answer 1

A country's current account surplus must equal its financial account deficit; a surplus implies a country is a net lender, while a deficit means it's a borrower. Higher net foreign assets per citizen do not mean a country is necessarily better off due to other economic factors.

Step-by-step explanation:

The net amount of new foreign assets that a country acquires equals its current account surplus, which in turn must equal its financial account deficit. This is because international flows of goods and services are closely linked to the flows of financial capital. A country with a current account surplus is a net lender to the world, which implies an outflow of investment capital. Conversely, a current account deficit indicates that a country is a net borrower, corresponding to an inflow of foreign investment capital.

If country A has greater net foreign assets per citizen than country B, it does not necessarily mean that country A is better off than country B. This is because net foreign assets do not provide a comprehensive measure of a country's economic well-being. Factors such as income levels, economic growth, and debt sustainability also play crucial roles. Therefore, the correct answer is B: Surplus; deficit; No.