Question

1,Ceteris paribus, which countries would you expect to rely MORE on foreign trade as a percentage of their economic activity?

A larger countries, like the US.

B smaller countries, like Sweden

2. An economy’s net exports always equals (choose one or both)

A the difference between its saving and its investment

B its trade balance

3. An economy’s trade balance always equals (choose one or both)

A net capital outflow

B net foreign investment

Answer 1

1.The correct option is A. Large countries like US is more likely to depend on the foreign trade as a percentage of their economic activity. They employ large numbers of workers to produce huge quantity of goods to be absorbed both in the domestic country as well as abroad.

2.The correct option is both A and B. An economy's net exports equal the difference between saving and investment.

National saving=Y-C-G

National output(Y) = C+I+G+NX.

Y-C-G=I+NX

Therefore S-I=NX.

Net exports=(Exports - Imports) = Trade balance

3. The correct option is both A and B. Net capital outflow is equal to net foreign investment which is defined as capital inflows (foreigners purchasing domestic assets) less capital outflows(domestic residents purchasing assets abroad) .

Net capital outflow(NCO) = Net foreign investment (NFI).

Thus for maintaining zero balance of payment, NX ( trade balance) must equal NCO OR NFI.