Suppose that the current account deficit equals $600 billion. Explain if the change in net foreign investment position will be larger or smaller than $600 billion in each of the following cases.
(a) Initially, the value of U.S-owned assets overseas is $3 trillion and of foreign-owned assets overseas in the United States is $4 trillion. The value of U.S-owned assets overseas rises by 10 percent, but the value of foreign-owned assets in the United States increases by only 5 percent.
(b) The number of yen required to buy a dollar increases from 110 to 115.