Question
Suppose that you are given the following for the small open economy of Frutopia: The citizens of Frutopia bought 120 million in new foreign assets
Suppose that you are given the following for the small open economy of Frutopia: The citizens of Frutopia bought 120 million in new foreign assets during the year while foreigners purchased 160 million in Frutopian assets. You also read in a report provided by Frutopias central bank that the valuation effects result in capital gains worth a total of 1 million and that domestic investment of 400 million in Frutopia earned 20 million in capital gains during 2022.
a) The first question is: What is the change in domestic wealth in Frutopia?
b) What is the change in external wealth for Frutopia?
c) What is the total change in wealth for Frutopia?
d) What are the domestic savings for Frutopia?
e) What is Frutopias current account? Is it negative or positive?
f) What is the intuition for the current account surplus/deficit in terms of savings in Frutopia, financial flows, and its domestic/external wealth position?
Note: To simplify the calculations you can assume that the capital account is zero.
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