Suppose Canada sells chocolate to the United States. Which of the following correctly identifies the effects of this transaction?
A)U.S. net exports increase, and U.S. net capital outflow increases.
B)U.S. net exports increase, and U.S. net capital outflow decreases.
C)U.S. net exports decrease, and U.S. net capital outflow increases.
D)U.S. net exports decrease, and U.S. net capital outflow decreases.

Question

Quizplus · Accepted Answer

When Canada sells chocolate to the U.S., the U.S. imports increase, leading to a decrease in U.S. net exports. Since the U.S. is buying from abroad, it implies a capital inflow, thus decreasing net capital outflow.

Suppose Canada Sells Chocolate to the United States