4.(2) - Because of the Identlty equation that relates net...

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Unformatted text preview: Because of the Identlty equation that relates net capital outflow to net exports, the decrease of In u.s. net exports Is matched by a decrease of In the u.s. net capital outflow. Which of the followlng are examples of how net capital outflow from the United States might be affected under thIs scenarlo? Check all that apply. of E Sony purchases s2.oao worth of stock In a U.5. company. of E Sony purchases s2,oao worth of U.S. bonds. 1" E Sony exchanges the $2,Dub for yen at the local bank, which then uses the dollars to purchase U.5. bonds. Explanation: flan A Because of how net capital outflow and net exports are defined and measured, a change In one tenn must result In a change In the other In order for the Identity to remain true. In this case, the decrease In U.5. net exports Is matched by a decrease In the U.5. net capItaI outflow. Net capital outflow Is defined as the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners. So In order for net capital outflow to decrease, either the purchase of foreign assets by domestic. residents must decrease, or the purchase of domestic assets by foreigners must increase. Sony's Inyestment In US. assets, such as bonds and stocks Is equlyalent to an Increase In the purchase of domesdc assets by foreigners. Alte‘natiyely, If Sony exchanges the s2,oao payment at the bank, the purchase of U.S. assets by the foreign bank also leads to a decrease In net capital outflow. ...
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