Question

suppose bob, a greek citizen, opens a restaurant in vancouver. what are the effects of this action? a. it increases canadian net capital outflow and has no effect on greek net capital outflow. b. it increases both canadian and greek net capital outflows. c. it increases canadian net capital outflow, but decreases greek net capital outflow. d. it decreases canadian net capital outflow, but increases greek net capital outflow.

Answer 1

Bob's action of opening a restaurant in Vancouver would result in an increased net capital outflow for Canada and a decreased net capital outflow for Greece, as he transfers capital from Greece to Canada for his investment.

Step-by-step explanation:

If Bob, a Greek citizen, opens a restaurant in Vancouver, the effect would be an increase in Canadian net capital outflow and a decrease in Greek net capital outflow. This is because Bob is moving financial capital from Greece, where it was presumably held, to Canada to invest in his business. This movement of capital will count as a capital outflow for Greece because capital is leaving the country, and a capital inflow for Canada because the country is receiving the investment.

Therefore, the correct answer is: c. it increases Canadian net capital outflow, but decreases Greek net capital outflow.

When an individual or entity from one country makes an investment in assets such as factories, offices, or other physical assets in another country, it is considered a form of capital outflow for the investor's home country and capital inflow for the country where the investment is made. In terms of national accounting, this transaction would affect the current account, which includes imports and exports of goods and services as well as international transfers of capital.