3. Net capital outflow and net exports **Net Capital Outflow = Net Exports**This fundamental equation illustrates that any transaction affecting one side must also impact the other side. The scenario below demonstrates why this principle holds true.Suppose you are the purchasing manager for a national chain of buffet restaurants in the United States, placing your annual order for hot chili oil. You purchase $2,500,000 worth of chili oil from a South Korean producer.**Objective:**Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy. Record your results in the provided 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.*| Direction of Change | Magnitude of Change (Dollars) ||---------------------|-------------------------------|| Exports | || Imports | || Net Exports | |Because of the identity equation related to net exports, the _________ in U.S. net exports is matched by _________ in U.S. net capital outflow. Which of the following is an example of how the United States might be affected in this scenario? **Check all that apply.**- [ ] The United States sells $2,500,000 worth of bonds to the South Korean chili oil producer.- [ ] The South Korean chili oil producer purchases $2,500,000 worth of stock spread out over a few U.S. companies.- [ ] The South Korean chili oil producer retains the $2,500,000 to use the U.S. dollars for investments. ## Net Capital Outflow and Net ExportsAn 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 Outflow = 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.### Table| Direction of Change | Magnitude of Change (Dollars) ||---------------------|-------------------------------|| Exports | || Imports | || Net Exports | |Because of the identity equation that relates to net exports, the change in U.S. net exports is matched by a change in U.S. net capital outflow.

Capital inflows are described as net purchases (difference between purchases and sales) of domestic products by non-residents. Capital outflows are equivalent to net purchases of foreign assets by domestic agents excluding the central bank.Import: The purchasing manager has purchased the product for 250,000. Thus, Country south Korea's total imports will be 250,000 and this shows a positive change in the import. Export: Since the Country south Korean individuals did not export any product from Country US, its magnitude will be zero. Net export: Net export computed as total export less total imports. Since the import is zero, the net export will be equal to $250,000. Represent the table as follows: The direction of change Magnitude of Change Export no change 0 Import increase 250000 Net Export decrease 250000 1st blank) decreases 2nd blank) decreases Which of the following is -------------- US might be affected in this scenario? The US sells $2,500,000 ----------------- SK chili oil producer. The SK chill oil --------------- $2,500,000 worth of --------------- over a few U.S. companies. The SK chili oil producer ------------ $2,500,000 so ----------- U.S. dollars to make investments.

Business

Economics

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 Outflow = 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 atched by in U.S. net capital

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 Outflow = 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 atched by in U.S. net capital

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Factor Models

Many attributes might be related to an asset's risk, including market capitalization (size), dividend yield, growth, price-earnings ratio, etc. The use of these traditional descriptors, however, presents a few problems:

Question

3. Net capital outflow and net exports

**Net Capital Outflow = Net Exports**

This fundamental equation illustrates that any transaction affecting one side must also impact the other side. The scenario below demonstrates why this principle holds true.

Suppose you are the purchasing manager for a national chain of buffet restaurants in the United States, placing your annual order for hot chili oil. You purchase $2,500,000 worth of chili oil from a South Korean producer.

**Objective:**
Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy. Record your results in the provided 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.*

| Direction of Change | Magnitude of Change (Dollars) |
|---------------------|-------------------------------|
| Exports | |
| Imports | |
| Net Exports | |

Because of the identity equation related to net exports, the _________ in U.S. net exports is matched by _________ in U.S. net capital outflow. Which of the following is an example of how the United States might be affected in this scenario? **Check all that apply.**

- [ ] The United States sells $2,500,000 worth of bonds to the South Korean chili oil producer.
- [ ] The South Korean chili oil producer purchases $2,500,000 worth of stock spread out over a few U.S. companies.
- [ ] The South Korean chili oil producer retains the $2,500,000 to use the U.S. dollars for investments.

## 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 Outflow = 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.

### Table

| Direction of Change | Magnitude of Change (Dollars) |
|---------------------|-------------------------------|
| Exports | |
| Imports | |
| Net Exports | |

Because of the identity equation that relates to net exports, the change in U.S. net exports is matched by a change in U.S. net capital outflow.

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