Question

1. Which of the following statements is (are) correct?
(x) Charles and Beatrice are American residents. Charles buys stock of a corporation in Germany. Beatrice opens a coffee shop in Germany. Both actions decrease Germany’s net capital outflow.
(y) Theodore a U.S. citizen, buys stock in a Japanese car producing company. This purchase is an example of saving for Theodore and foreign portfolio investment for the United States.
(z) A U.S. firm buys bonds issued by a car producer in Italy. This purchase of bonds is an example of U.S. foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (y) only

4. Which of the following statements is (are) correct?
(x) During some year a country had exports of $60 billion, imports of $70 billion, and domestic investment of $90 billion. Its saving during the year was $100 billion.
(y) If a country has 50 billion euros of imports, 30 billion euros of exports, and sells 40 billion euros of assets to foreigners, then domestic residents purchased 20 billion euros of foreign assets.
(z) The country of Greatland has net capital outflow of $100,000, government purchases of $500,000 and consumption of $2,000,000. If its domestic investment is $200,000, then its GDP is $2,800,000.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (y) only

5. , which of the following statements is (are) correct?
(x) From 1960 to about 1975 in the United States, net capital outflow was small and sometimes negative and sometimes positive.
(y) Most of the change from 1991 to 2000 in U.S. net capital outflow as a percent of GDP was due to a decrease in U.S. investment
(z) In the U.S. from 2000 to 2006, net capital outflow as a percent of GDP became a larger negative number because of a large trade deficit and a large net capital inflow.
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

1. ANSWER : E. (Y) ONLY

For (x), Since Charles and Beatrice are American residents, if Charles buys stock of a corporation in Germany and Beatrice opens a coffee shop in Germany, both the actions increase Germany’s net capital outflow as both of them will be sending back money to their home country, United States. As a result, the net capital inflow of America will increase.

For (y),  Theodore a U.S. citizen, buys stock in a Japanese car producing company. This purchase is an example of saving for Theodore and foreign portfolio investment for the United States.

For (z),  The U.S. firm buys bonds issued by a car producer in Italy. This purchase of bonds is an example of U.S. foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.

Hence (y) is the correct answer.

4. ANSWER : D . (Y) & (Z) ONLY

For (x), During some year a country had exports of $60 billion, imports of $70 billion, and domestic investment of $90 billion. Its saving during the year was $80 billion. Since it had a trade deficit of $10 billion.

For (y), the country's trade deficit was 20 billion euros and sells 40 billion euros of assets to foreigners, then domestic residents purchased 20 billion euros of foreign assets.

For (z), The country of Greatland has net capital outflow of $100,000, government purchases of $500,000 and consumption of $2,000,000. If its domestic investment is $200,000, then its GDP is $2,800,000. Because Consumption, Investment, Government puchases and capital flow are all together measured to calculate the GDP.

Hence the answer is (y) and (z).

5. ANSWER : C . (X) & (Z) ONLY

For (x),  From 1960 to about 1975 in the United States, net capital outflow was small and sometimes negative and sometimes positive.

For (y),  Most of the change from 1991 to 2000 in U.S. net capital outflow as a percent of GDP was due to an increase in U.S. investment.

For (z),   In the U.S. from 2000 to 2006, net capital outflow as a percent of GDP became a larger negative number because of a large trade deficit and a large net capital inflow.

Hence the answer is (x) and (z) only.