Suppose Paul, a Romanian citizen, builds a telescope factory in Israel. Which of the following correctly identifies the effects of these expenditures?
A)They increase Romanian and Israeli net capital outflow.
B)They increase Romanian net capital outflow, but decrease Israeli net capital outflow.
C)They decrease Romanian net capital outflow, but increase Israeli net capital outflow.
D)They increase Romanian net capital outflow, but Israeli net capital outflow remain unchanged.

Question

Quizplus · Accepted Answer

Paul, being a Romanian citizen, is considered a foreign investor in Israel. Building a factory in Israel means that he is investing in Israel, which is a capital outflow from Romania. Therefore, Romanian net capital outflow increases. On the other hand, the expenditures made by Paul in Israel increase Israeli capital inflow, which means that Israeli net capital outflow decreases. Hence, the correct option is B) They increase Romanian net capital outflow, but decrease Israeli net capital outflow.

Suppose Paul, a Romanian Citizen, Builds a Telescope Factory in Israel