4. Net capital outflow and net exports An open economy interacts with the rest of the world through involvement in world financial markets, and also world markets for goods and services. Despite the fact that this involvement often results in an imbalance in these markets, the following identity must hold: Net Capital Out flow = Net Exports That is, any transaction that affects the left side of this equation must also affect the right side. The following problem provides a scenario that illustrates why this identity must remain true. Suppose you work as the purchasing manager for a national chain of buffet restaurants in the United States, and it is time to place your annual order of hot chili oil. You pay $2,500,000 for a shipment of chili oil from a producer in South Korea. Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy, and enter your results in the following table. If the direction of change is "No change," enter "0" in the Magnitude of Change column. Hint: The magnitude of change should always be positive, regardless of the direction of change. Magnitude of Change (Dollars) Exports Imports Net Exports Direction of Change in U.S. net exports is matched by in U.S. net capital Because of the identity equation that relates to net exports, the outflow. Which of the following is an example of how the United States' net capital outflow might be affected in this scenario? Check all that apply. The South Korean chili oil producer hangs on to the $2,500,000 so that it can use the U.S. dollars to make investments. The South Korean chili oil producer purchases $2,500,000 worth of stock spread out over a few U.S. companies. The United States sells $2,500,000 worth of bonds to the South Korean chili oil producer.
4. Net capital outflow and net exports An open economy interacts with the rest of the world through involvement in world financial markets, and also world markets for goods and services. Despite the fact that this involvement often results in an imbalance in these markets, the following identity must hold: Net Capital Out flow = Net Exports That is, any transaction that affects the left side of this equation must also affect the right side. The following problem provides a scenario that illustrates why this identity must remain true. Suppose you work as the purchasing manager for a national chain of buffet restaurants in the United States, and it is time to place your annual order of hot chili oil. You pay $2,500,000 for a shipment of chili oil from a producer in South Korea. Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy, and enter your results in the following table. If the direction of change is "No change," enter "0" in the Magnitude of Change column. Hint: The magnitude of change should always be positive, regardless of the direction of change. Magnitude of Change (Dollars) Exports Imports Net Exports Direction of Change in U.S. net exports is matched by in U.S. net capital Because of the identity equation that relates to net exports, the outflow. Which of the following is an example of how the United States' net capital outflow might be affected in this scenario? Check all that apply. The South Korean chili oil producer hangs on to the $2,500,000 so that it can use the U.S. dollars to make investments. The South Korean chili oil producer purchases $2,500,000 worth of stock spread out over a few U.S. companies. The United States sells $2,500,000 worth of bonds to the South Korean chili oil producer.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:4. Net capital outflow and net exports
An open economy interacts with the rest of the world through involvement in world financial markets, and also world markets for goods
and services. Despite the fact that this involvement often results in an imbalance in these markets, the following identity must hold:
Net Capital Out flow = Net Exports
That is, any transaction that affects the left side of this equation must also affect the right side. The following problem provides a
scenario that illustrates why this identity must remain true.
Suppose you work as the purchasing manager for a national chain of buffet restaurants in the United States, and it is time to place your annual order
of hot chili oil. You pay $2,500,000 for a shipment of chili oil from a producer in South Korea.
Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy, and
direction of change is "No change," enter "0" in the Magnitude of Change column.
Hint: The magnitude of change should always be positive, regardless of the direction of change.
Magnitude of Change
(Dollars)
Exports
Imports
Net Exports
Direction of Change
your results in the following table. If the
in U.S. net exports is matched by
Because of the identity equation that relates to net exports, the
in U.S. net capital
outflow. Which of the following is an example of how the United States' net capital outflow might be affected in this scenario? Check all that apply.
The South Korean chili oil producer hangs on to the $2,500,000 so that it can use the U.S. dollars to make investments.
The South Korean chili oil producer purchases $2,500,000 worth of stock spread out over a few U.S. companies.
The United States sells $2,500,000 worth of bonds to the South Korean chili oil producer.
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