In the market for foreign currency exchange in the open economy macroeconomic model, which of the following does the amount of net capital outflow represent?
A)the quantity of dollars supplied for the purpose of selling assets domestically
B)the quantity of dollars supplied for the purpose of buying assets abroad
C)the quantity of dollars demanded for the purpose of buying Canadian net exports of goods and services
D)the quantity of dollars demanded for the purpose of importing foreign goods and services

Question

Quizplus · Accepted Answer

Net capital outflow represents the amount of domestic currency supplied for the purpose of buying foreign assets. Therefore, option B is the correct answer. Option A is incorrect as it refers to selling assets domestically, while net capital outflow refers to buying foreign assets. Option C is incorrect as it refers to the demand for Canadian net exports, while net capital outflow denotes the supply of domestic currency. Option D is incorrect as it refers to the demand for foreign goods and services, which is represented by the trade balance.

In the Market for Foreign Currency Exchange in the Open