Question

g Citizens in India buy music from the U.S. To do so they use Indian rupees to purchase U.S. dollars. If U.S. citizens hold these rupees rather than spending them, what happens to U.S. net exports and U.S. net capital outflows

Answer 1

Answer: a. both U.S. net exports and U.S. net capital outflow rise

Step-by-step explanation:

US exports in this case is the music that the Indians are listening to. By paying for this music, the US exports are rising as they are leaving the shore of the United States so to speak.

US Net Capital Outflow refers to the investment in foreign assets by Americans over the investment by Foreigners in America.

Net Capital Outflow is increasing because the Americans held onto the Rupees which can be considered as the Americans investing in the Indian Rupees. The Americans are therefore investing in India more by holding those Rupees as opposed to the Indians who hold no dollars now.