Which of the following represents the account identity?[Fill in the blank]

Question

BlackTom AI · Accepted Answer

Net foreign investment (NFI) equals the capital-account balance (CAB).

Relevant concepts:
- Y (GDP) identity: Y = C + I + G + NX (where NX = net exports).
- National saving S = Y − C − G. Rearranging gives S = I + NX, so NX = S − I.
- Net capital outflow (NCO) or net foreign investment (NFI) is defined as the net purchase of foreign assets by domestic residents minus domestic purchase of domestic assets by foreigners.
- The capital account (CAB) records the net flow of financial capital across borders. By definition, the CAB equals the net capital outflow (sign conventions aside).

Step-by-step derivation:
1. Start with GDP identity: Y = C + I + G + NX.
2. Define saving: S = Y − C − G. Substitute Y to get S = I + NX.
3. Rearrange: NX = S − I. This shows net exports equal national saving minus investment.
4. The difference S − I measures net capital outflow (NCO) — the funds that leave the country to buy foreign assets. Therefore NCO = NX.
5. NCO is the same economic flow as net foreign investment (NFI) by definition: NFI ≡ NCO.
6. The capital account balance (CAB) records these net capital flows. Thus CAB = NFI.

Why the correct answer is correct:
- CAB is the accounting record of net capital flows; NFI is the economic measure of net capital outflow. They refer to the same flow and therefore are equal: NFI = CAB.

Why the other options are incorrect:
- (a) NFI + I = NX is wrong because from S = I + NX we have NX = S − I, not NX = NFI + I. NFI relates to S − I, not to I + NFI in that way.
- (c) NX + NFI = Y is incorrect: Y = C + I + G + NX, and adding NFI to NX does not yield total output Y.
- (d) Y = NFI − NX is incorrect algebraically and dimensionally; Y is not the difference between NFI and NX.

Conclusion: The correct account identity is NFI = CAB, matching the provided answer (b).

Which of the following represents the account identity?[Fill in the blank]单项选择题

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