A Canadian computer maker sells computers to a German firm. This company uses all of the revenues from this sale to purchase automobiles from German firms. Which of the following best describes the effects of these transactions?
A)They will increase both Canadian net exports and Canadian net foreign investment.
B)They will decrease both Canadian net exports and Canadian net foreign investment.
C)They will increase Canadian net exports and will not affect Canadian net foreign investment.
D)They will not affect Canadian net exports or Canadian net foreign investment.

Question

Quizplus · Accepted Answer

The sale of computers from Canada to Germany will increase Canadian exports and generate revenue in Canadian dollars. The subsequent purchase of automobiles by the German firm from German firms will decrease German net exports and increase German net foreign investment, but it will increase Canadian net foreign investment as the German firm is using its revenues from the Canadian computer purchase to invest in Canadian firms. Therefore, option A is the correct answer.

A Canadian Computer Maker Sells Computers to a German Firm