Question

7. Citizens in the United States buy televisions from Japan. To do so they use U.S. dollars to purchase Japanese yen. If Japanese citizens hold these U.S. dollars rather than spending them, what happens to Japan’s net exports and Japan’s net capital outflows?
A. both net exports and net capital outflow fall in Japan
B. both net exports and net capital outflow rise in Japan
C. net exports rise in Japan and net capital outflow falls in Japan
D. net exports fall in Japan and net capital outflow rises in Japan
E. net exports fall in Japan and net capital outflow remains the same in Japan

10. Which of the following statements is (are) correct?
(x) Net capital outflow is always less than net exports if the country has a trade deficit.
(y) If S = I + NCO, then I = S – NCO
(z) If saving is greater than domestic investment, then NCO is greater than net exports.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (y) only

16. In which of the following situations must national saving rise?
(x) Both domestic investment and net capital outflow increase.
(y) Domestic investment increases and net capital outflow decreases.
(z) Domestic investment is unchanged and net capital outflow increases.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

Answer 1

7) :-B is right option

both net exports and net capital outflow rise in Japan

Net exports calculation formula=

(value of country's exports)- (value of country's imports)

capital flow equation

net capital flow=

(purchase of foreign assets by domestic country)

- (purchase of domestic assets by foreigners)

10):-E is right option

Relationship between savings, investment, and NCO

S = I +NCO

And also remember that NCO=NX.

16) :-C is right option

Both domestic investment and net capital outflow increase

Domestic investment is unchanged and net capital outflow increase

capital flow equation are:

net capital flow=

(purchase of foreign assets by domestic residents)

- (purchase of domestic assets by foreigners)