Suppose Katie, a Romanian citizen, builds a toy factory in Australia. What are the effects of these expenditures?
A) They increase Romanian and Australian net capital outflow.
B) They increase Romanian net capital outflow, but decrease Australian net capital outflow.
C) They decrease Romanian net capital outflow, but increase Australian net capital outflow.
D) They increase Romanian net capital outflow, but Australian net capital outflow remains unchanged.

Question

Quizplus · Accepted Answer

Katie is a Romanian citizen, so her expenditures for building a toy factory in Australia will increase Romanian net capital outflow. However, the fact that she is building a factory in Australia will decrease Australian net capital outflow, as foreign investment is coming into the country. Therefore, the correct answer is B.

Suppose Katie, a Romanian Citizen, Builds a Toy Factory in Australia