If a Canadian manufacturer of linens purchases cotton from Egypt, what are the effects of this transaction?
A) Canadian net exports increase, and Canadian net capital outflow increases.
B) Canadian net exports increase, and Canadian net capital outflow decreases.
C) Canadian net exports decrease, and Canadian net capital outflow increases.
D) Canadian net exports decrease, and Canadian net capital outflow decreases.

Question

Quizplus · Accepted Answer

When the Canadian manufacturer purchases cotton from Egypt, it is an import for Canada, which decreases Canadian net exports. To pay for the cotton, Canada might use foreign currency reserves or borrow, which decreases Canadian net capital outflow.

If a Canadian Manufacturer of Linens Purchases Cotton from Egypt