The long-run budget constraint indicates that, in the long run, a country's initial external wealth must be offset by (i.e., equal to):
A) the present value of its future trade balances.
B) the future value of its future trade balances.
C) the current value of its future trade balances.
D) the present value of its future external wealth.

Question

Quizplus · Accepted Answer

The long-run budget constraint for a country states that its initial external wealth must be equal to the present value of its future trade balances. This reflects the idea that over time, a country's net foreign assets (or liabilities) must be balanced by the net present value of its future trade surpluses (or deficits).

The Long-Run Budget Constraint Indicates That, in the Long Run