Consider only the flow of funds spent on acquiring assets. Which of the following is true if the U.S. has a net capital inflow of funds?
I. Foreign purchases of U.S. assets are greater than U.S. residents' purchases of foreign assets.
II. Foreign purchases of U.S. assets are less than U.S. residents' purchases of foreign assets.
III. There is a capital account surplus.
IV. There is a capital account deficit.

Question

Quizplus · Accepted Answer

A net capital inflow of funds means that there is more foreign money flowing into the U.S. than U.S. money flowing out to foreign countries. Therefore, foreign purchases of U.S. assets must be greater than U.S. residents' purchases of foreign assets (I). This results in a capital account surplus (III) because the U.S. is receiving more foreign money than it is sending out. Therefore, options II and IV are incorrect.

Consider Only the Flow of Funds Spent on Acquiring Assets