In the market for foreign-currency exchange in the open economy macroeconomic model,the amount of net capital outflow represents the quantity of dollars
A)supplied for the purpose of selling assets domestically.
B)supplied for the purpose of buying assets abroad.
C)demanded for the purpose of buying U.S.net exports of goods and services.
D)demanded for the purpose of importing foreign goods and services.

Question

Quizplus · Accepted Answer

Net capital outflow (NCO) represents the amount of domestic currency (dollars) supplied for the purpose of buying assets abroad. In the open economy macroeconomic model, the NCO is equal to the difference between domestic saving (S) and domestic investment (I). NCO = S – I. Thus, when S > I, there is a net capital outflow of the excess savings to foreign countries, which represents the quantity of dollars supplied for the purpose of buying foreign assets. Option A is incorrect because it describes the opposite action - supplying dollars for the purpose of selling assets domestically. Option C incorrectly describes net exports, which is the difference between exports and imports. Option D incorrectly describes the demand for dollars for the purpose of importing foreign goods and services.

In the Market for Foreign-Currency Exchange in the Open Economy