Question

Indicate whether each of the following transactions represents an increase in net exports, a decrease in net exports, an increase in net capital outflow, or a decrease in net capital outflow for the United States.
a. A worker at a Sony plant in Japan buys some Georgia peaches from an American farmer.
b. The Sony pension fund buys a bond from the U.S. Treasury.
c. An American investor buys a controlling share in a South Korean electronics firm.

Answer 1

Answer:

(a). A worker at a Sony plant in Japan buys some Georgia peaches from an American farmer.

- Increase in exports while no change in imports.

(b). The Sony pension fund buys a bond from the U.S. Treasury.

- Decrease in a net outflow of capital. Thus, it would be considered as a negative inflow/outflow.

(c). An American investor buys a controlling share in a South Korean electronics firm.

- Increase in Net Capital outflow for the U.S.

Explanation:

Exports are described as the selling of domestic goods to a foreign country while Imports are characterized as the process of bringing in foreign goods to the domestic country. And Capital outflow is defined as the exact flow of funds from domestic to foreign and foreign to the domestic country.

In the first case, the purchase reflects a rise in exports as the domestic product is sold to the foreign country. In the second situation, the net outflow of the capital would decreases as it demonstrates a foreign purchase of a domestic asset. In the third example, the American investors' purchase of a South Korean firm demonstrates a domestic purchase of a foreign asset and thus, the net capital outflow would rise.