4. Net capital outflow and net exports An open economy interacts with the rest o

Question

4. Net capital outflow and net exports An open economy interacts with the rest of the world through its involvement in world markets for goods and services and world financial markets. Although it can often result in an imbalance in these markets, the following identity must remain true: Net Capital Outflow = Net Exports In other words, if a transaction directly affects the left side of this equation, then it must also affect the right side. The following problem will help you understand why this identity must hold.

Explanation / Answer

because of this identity equation that relates to net exports, the increases in the net export of U.S is matched by increases in the U.S net capital outflow.

THe answer is B -)

you exchnage the THB 80,000 for dollars at your bank , which then use the foreign currency to purchase stock in Thai corporation .

Direction of change magnitude of change exports INcreases 80000 Imports No change 0 net exports INcreases 80000

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