Question

When a U.S. oil company purchases oil from Saudi Arabia and the Saudi Arabian firm uses the proceeds from the sale to buy transportation services from the U.S., U.S. net exports ________ and the capital inflow to the United States ________.
Group of answer choices:
A) are negative; is negative
B) are positive; is negative
C) are unchanged; is unchanged
D) are negative, is positive

Answer 1

Answer:

C. are unchanged; is unchanged

Explanation:

When the US purchases oil from Saudi Arabia its imports increases and hence Net export falls. However, when Saudi Arabia purchases transportation service US export rises by the equivalent amount. Hence the Net exports are unchanged.

Since there are no capital flow, it is also unchanged.