Suppose we measure Canada's net capital outflow by what Statistics Canada calls "net international investment position," and we approximate the real exchange rate of the dollar by the price of Canadian dollar in terms of U.S. dollars. The following table gives data on these two variables, as provided by Statistics Canada.

a.What does our open-economy macro model predict with regard to the relationship between net capital outflow and the real exchange rate?
b.Do you find evidence in the data to support the theory?
c.If you find discrepancies between the data and the theory, what could cause them?

Question

Suppose we measure Canada's net capital outflow by what Statistics Canada calls "net international investment position," and we approximate the real exchange rate of the dollar by the price of Canadian dollar in terms of U.S. dollars. The following table gives data on these two variables, as provided by Statistics Canada.
  
a.What does our open-economy macro model predict with regard to the relationship between net capital outflow and the real exchange rate?
b.Do you find evidence in the data to support the theory?
c.If you find discrepancies between the data and the theory, what could cause them?

Quizplus · Accepted Answer

The Answer of Suppose we measure Canada's net capital outflow by what Statistics Canada calls "net international investment position," and we approximate the real exchange rate of the dollar by the price of Canadian dollar in terms of U.S. dollars. The following table gives data on these two variables, as provided by Statistics Canada.
  
a.What does our open-economy macro model predict with regard to the relationship between net capital outflow and the real exchange rate?
b.Do you find evidence in the data to support the theory?
c.If you find discrepancies between the data and the theory, what could cause them?

Suppose We Measure Canada's Net Capital Outflow by What Statistics