Final answer:
The amount of net capital outflow in the open-economy macroeconomic model represents the supply of dollars used to purchase foreign assets. Net capital outflow equates to the export of financial capital and occurs when investments are made abroad rather than within the country's borders.
Step-by-step explanation:
In the market for foreign-currency exchange within the open-economy macroeconomic model, the amount of net capital outflow represents the quantity of dollars supplied for the purpose of buying assets abroad. This outflow occurs when residents of a country invest in foreign assets, whether these are real estate, stocks, bonds, or other financial products. Net capital outflow is essentially the export of capital and is a crucial aspect of the international flow of financial capital.
When a country experiences net capital outflow, its residents are sending more capital overseas than what is coming in from the rest of the world. In an equation form, represented as (X - M) where exports (X) are subtracted from imports (M), if the number is positive, it indicates a net capital outflow, which is equal to the trade surplus. Conversely, a trade deficit occurs when the amount of imports exceeds exports.
Net capital outflows can lead to a decrease in the demand for that country's currency on the international market, which can in turn lower the exchange rate. However, in small economies, substantial capital outflows can threaten financial stability and potentially induce a deep recession if there's a sudden reversal of capital flows resulting in a sharp currency decline.