Suppose the world had only two countries and domestic residents of country A purchased $50 billion of assets from country B and country B purchased $30 billion of assets from country A.What would the net capital outflows of both countries be?
A)$50 billion for country A and $30 billion for country B
B)$30 billion for country A and $50 billion for country B
C)$20 billion for country A and -$20 billion for country B
D)-$20 billion for country A and $20 billion for country B

Question

Quizplus · Accepted Answer

Net Capital Outflow (NCO) is calculated as a difference between a country's purchase of foreign assets (outflow) and foreign purchase of domestic assets (inflow). 
For Country A, NCO = $50 billion (outflow) - $30 billion (inflow) = $20 billion outflow
For Country B, NCO = $30 billion (outflow) - $50 billion (inflow) = -$20 billion inflow (note that we use a negative sign to indicate inflow)

Therefore, the correct answer is (C) $20 billion for country A and -$20 billion for country B.

Suppose the World Had Only Two Countries and Domestic Residents