Net capital outflow and net exports An open economy interacts with the rest of the world through its involvement in world market

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Net capital outflow and net exports An open economy interacts with the rest of the world through its involvement in world market

s 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: 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. Suppose you are a fashion designer Living In the United States, and a trendy boutique in Bangkok just purchased your entire inventory for THB 80,000.
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. Because of the identity equation that relates)_________ 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?
a. You store the Thai baht in your safety deposit box at home.
b. You purchase THB 48,000 worth of stock in a Thai corporation and THB 32,000 worth of Thai bonds.
c. You exchange the THB 80,000 for dollars at your local bank, which then uses the foreign currency to purchase stock in a Thai corporation.

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1 answer:

harina [3.8K] · Answer 1 · 2026-04-03T10:23:27+03:00

Answer:

1. a. The exports will rise by THB 80,000

As you are located in the US and have sold a product to a customer outside the US, this counts as an export resulting in a growth in US exports of THB 80,000.

b. There will be no imports.

You have not imported anything into the country from abroad.

c. Net exports will total THB 80,000

Net exports are deduced by subtracting imports from exports within a certain timeframe.

80,000 - 0

= THB 80,000

2. Due to the identity equation linked to net exports, the rise in U.S. net exports corresponds with an increase in U.S. net capital outflow.

Consequently, through exporting goods, funds from other nations flow into the US. This influx of capital bolsters the net capital outflow for the U.S.

3. a. You keep the Thai baht in your safety deposit box at home.

b. You invest in THB 48,000 worth of shares in a Thai company and THB 32,000 in Thai bonds.

c. You convert the THB 80,000 to dollars at your neighborhood bank, which then utilizes the foreign currency to buy stocks in a Thai corporation.

In the first case, the US is influenced since, although funds were received, they remain idle at home. In the other two instances, the money was not used to acquire items within the US but rather flowed back abroad. This indicates a capital outflow from the US which adversely impacts net capital outflow.