Question

The following table contains data for the U.S. balance of payments in a prior year. Answer the question on the basis of this information. All figures are in billions of dollars. U.S. goods exports +$793 U.S. goods imports -1573 U.S. exports of service +280 U.S. imports of services -222 Net investment income +5 Net transfers -81 Capital account -5 Foreign purchases of assets in the U.S. +1198 U.S. purchases of foreign assets -395 Refer to the table above. The data indicate that Americans:

a) Earned more from their investments abroad than foreigners earned from their investments in America
b) Sold more products to buyers abroad than what foreign producers sold to buyers in America
c) Bought foreign assets abroad more than foreigners bought assets in the U.S.
d) Invested abroad more than foreigners invested in America

Answer 1

Americans earned more from their investments abroad than foreigners earned from their investments in the U.S., resulting in a positive net investment income. However, the trade balance shows a significant deficit, with imports exceeding exports. Lastly, the capital account reflects that foreign investors invested more in U.S. assets than Americans did in foreign assets.C is the correct.

Step-by-step explanation:

Based on the presented data for the U.S. balance of payments, the data indicate that Americans:

• Earned more from their investments abroad than foreigners earned from their investments in America. As we can see, net investment income is +$5 billion, which means that U.S. investors received more income from their investments abroad than what foreigners received from their investments in the U.S.
• The situation with the trade balance shows that U.S. goods exports were +$793 billion while imports were -$1573 billion, and service exports and imports were +$280 billion and -$222 billion, respectively. This results in a substantial trade deficit, as goods and services imports exceed exports.
• When looking at investments, foreign purchases of assets in the U.S. were +$1198 billion while U.S. purchases of foreign assets were -$395 billion, indicating that foreigners invested more in the U.S. than Americans invested abroad.

The balance of payments is a critical indicator of a country's economic dealings with the rest of the world, and the U.S. experience with the global economy has seen substantial capital inflows, despite trade deficits.