ch9 (3) - What others owe you, minus what you owe them. A...

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What others owe you, minus what you owe them. A measure of a “net worth” When you borrow, your liabilities rise, reducing net worth When you lend, your assets rise, increasing net worth. The same principle applies to countries Countries experience changes in external wealth External wealth = external assets – external liabilities Changes in external wealth may reflect a country borrowing (foreign liabilities increase) or lending (foreign assets increase) from/to other countries. They may also reflect capital gains and losses External wealth > 0 → Creditor External wealth < 0 → Debtor External wealth changes for several reasons. Countries with … Current account deficits borrow from the rest of the world (foreign liabilities increase) this is how they pay for expenditure > income this reduces external wealth Current account surpluses lend to the rest of the world (foreign assets increase) use with the funds saved from income > expenditure
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ch9 (3) - What others owe you, minus what you owe them. A...

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