Question

19. According to the textbook, which of the following statements is (are) correct? (x) A nation with a large trade surplus must have large and positive net capital outflow

(y) A nation with a large trade deficit must have large and negative net capital outflow

(z) A nation with a small trade deficit must have a slightly larger amount of exports than imports and slightly more capital outflow than capital inflow.

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (y) and (z) only

E. (x) only

20. According to the textbook, which of the following statements is (are) correct?

(x) In the United States before 1980, national saving and domestic investment were close, and so net capital outflow was small (in absolute value terms).

(y) In the United States after 1980, national saving and domestic investment were far apart, and so net capital outflow was large (in absolute value terms).

(z) An increase in the government budget deficit was largely responsible for the change in U.S. net capital outflow as a percent of GDP from 1980 to 1987.

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (y) and (z) only

E. (x) only

Answer 1

19> E

Reason

A large trade surplus means that export exceeds import by a large amount. We know, NCO equals net export, so we have large and positive NCO

If a nation has trade deficit, it means that import exceeds export

20> A

Before 1980, national savings was close to the domestic investment, thus the net capital outflow was small, but after 1980, investment far exceeded savings, thus NCO became large and negative. From 1980 to '87, government has budget deficit which was responsible for it.