In an open economy,
A)net capital outflow = imports.
B)net capital outflow = net exports.
C)net capital outflow = exports.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

In an open economy, the net capital outflow (NCO) represents the difference between the amount of domestic savings invested abroad and the amount of foreign savings invested domestically. This NCO must be equal, by definition, to the net exports (NX), which is the difference between the value of exports and the value of imports, since any excess of imports over exports must be financed by borrowing from abroad (i.e. a net capital inflow). Therefore, net capital outflow = net exports.

In an Open Economy