Question

g 2. Problems and Applications Q2 Indicate whether each of the following transactions represents an increase in net exports, a decrease in net exports, an increase in net capital outflow, or a decrease in net capital outflow for the United States. Transaction Net Exports Net Capital Outflow Increase Decrease Increase Decrease The Sony pension fund buys a bond from the U.S. Treasury. A worker at a Sony plant in Japan buys some Georgia peaches from an American farmer. An American buys a Toyota. An American investor buys a controlling share in a South Korean electronics firm.

Answer 1

The Sony pension fund buys a bond from the U.S. Treasury. ⇒ Decrease in Net Capital Outflow

Net Capital outflow is calculated by subtracting investments made by foreign entities in the United States from investments made by American entities in other countries. The Sony pension fund in this scenario, invested in the U.S. which would therefore reduce the Net capital outflow.

A worker at a Sony plant in Japan buys some Georgia peaches from an American farmer. ⇒ Increase in Net Exports

Net exports is calculated by subtracting the goods brought into the United States from other countries (imports) from those goods sold by the U.S. to other countries (exports). This scenario shows an increase in exports so Net exports will increase.

An American buys a Toyota. ⇒ Decrease in Net exports

An American buying a Toyota means they imported it so Net exports will go down.

An American investor buys a controlling share in a South Korean electronics firm. ⇒ Increase in Net Capital Outflow

Here cash is leaving the United States for an investment in another country so as per the definition above, Net Capital outflow is increasing.