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In the market for foreign-currency exchange in the open-economy macroeconomic model, which of the following does the amount of net capital outflow represent?
a.
the quantity of dollars supplied for the purpose of selling assets domestically
b.
the quantity of dollars supplied for the purpose of buying assets abroad
c.
the quantity of dollars demanded for the purpose of buying Canadian net exports of goods and services
d.
the quantity of dollars demanded for the purpose of importing foreign goods and services

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Nusrat Fatima
Nusrat FatimaLv10
28 Sep 2019

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Related questions

In an open economy, national saving equals domestic investment
 
A. Minus the net exports of goods and services.
B. Plus the government's budget deficit.
C. Minus foreign portfolio investment.
D. Plus the net outflow of capital abroad.
In an open economy, national saving equals domestic investment: 
 
(i) plus the net outflow of capital abroad. 
(ii) minus the net exports of goods and services. 
(iii) plus the government's budget deficit. 
(iv) minus foreign portfolio investment.

Assume that the U.S. dollar and the Japanese yen are the only two currencies in the world.

a. A bilateral nominal exchange rate S is the spot (now) exchange value of one currency in terms of the other and S can be written as dollars per 1 yen or yen per 1 dollar. If S = yen/1 dollar = 76.92 then the inverse 1/S gives dollars per 1 yen where 1/S = 1/(yen/1 dollar) = 1/76.92 = .013. If the 1/S increases to .014, has the dollar appreciated (1 dollar is worth more yen) or depreciated (1 dollar is worth less yen)? Explain.

b. Changes in demand and supply in the foreign exchange (FX) market determine the value of floating exchange rates S. If S is expressed as S = yen/1 dollar, then we have the FX market in terms of the demand and supply of dollars. (If S = dollars/1 yen, then we get the FX market in terms of the demand and supply of yen. Note also that no matter which currency the FX market is expressed, it is still an FX market where dollars are exchanged for yen. This means that an upward-sloping supply of dollars curve is exactly the same as a demand for yen curve and a downward-sloping demand for dollars curve is exactly the same as a supply of yen curve). Using S = yen/1 dollar and the FX market in terms of the demand and supply of dollars, an increase in S (dollar appreciation) leads to an increase in the number of dollars supplied (increase in the quantity of yen demanded). For dollar demand (or the supply of yen), an increase in S (dollar appreciation) leads to a decrease in the number of dollars demanded (or an increase in the number of yen supplied). The dollar demand curve shifts to the right if more yen are offered for dollars at any exchange rate S. An increase in dollar demand is caused mostly by private sector transactions in the current and capital accounts. Either an increase in demand for U.S. goods (merchandise trade in the current account) or an increase in demand for U.S. stocks and bonds (capital account inflows) will shift the dollar demand curve to the right. If private transactions in the current and capital accounts also cause shifts in the dollar supply curve, what are the corresponding factors that would lead to an increase in dollars supplied (yen demanded) at any exchange rate S?

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