What does the identity "net capital outflow = net exports" imply?
A)The supply of dollars equals the demand in the foreign-currency market.
B)National saving equals domestic investment.
C)The volume of exports equals the volume of imports.
D)Canadian investment abroad is equal to foreign investment in Canada.

Question

Quizplus · Accepted Answer

The identity "net capital outflow = net exports" implies that the supply of dollars equals the demand in the foreign-currency market. This is because a net capital outflow means that more dollars are being sold than bought, which would lead to a decrease in the value of the dollar. To prevent this, the central bank will intervene and buy dollars, which will increase the demand for dollars and bring the market back into equilibrium.

What Does the Identity "Net Capital Outflow = Net Exports