Question

A U.S. bakery buys wheat from Canada and pays for it with US dollars. This transaction a. increases Canadian net exports, and increases U.S. net capital outflow. b. increases Canadian net exports, and decreases U.S. net capital outflow. c. decreases Canadian net exports, and increases U.S. net capital outflow. d. decreases Canadian net exports, and decreases U.S. net capital outflow.

Answer 1

Answer: b. increases Canadian net exports, and decreases U.S. net capital outflow.

Explanation:

Based on the information given, the net export of Canada will increase. Net exports measures the total trade of a country. It's the difference between the country's export and its import.

Since the U.S bakery is buying wheat from Canada, it means the export will increase thereby increasing the country net export. On the other hand, there's a reduction in the net capital outflow of the United States.

Therefore, the correct option is B