Homework ECO201 Week 6

Homework ECO201 Week 6 - Chapter 31 Questions 1. Define net...

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Chapter 31 Questions 1. Define net exports and net capital outflow. Explain how and why they are related. Net Exports are the value of a nation’s exports minus the value of its imports; also called the trade balance. Net Capital Outflow is the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners. Net exports and net capital outflow both measure an imbalance of some type. In the case of net exports, the imbalance measured is between the exports and imports of a country. Net capital outflow measures the imbalance between foreign assets bought by domestic residents and domestic assets bought by foreigners. An economy’s net capital outflow must always equal net exports. Every transaction made in an economy affects both net exports and net capital outflow. 2. Explain the relationship among saving, investment and net capital outflow. In a nutshell; a nation’s savings must equal it’s domestic plus it’s net capital outflow, i.e., if I save a dollar that dollar can be used to invest in domestic capital or invest in foreign capital. An
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Homework ECO201 Week 6 - Chapter 31 Questions 1. Define net...

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