Question

If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the proceeds to buy foreign goods, which of the following increases?
A. Saudi Arabian net exports but not Saudi Arabian net capital outflow
B. Saudi Arabian net capital outflow but not Saudi Arabian net exports
C. Both Saudi Arabian net exports and net capital outflow
D. Either Saudi Arabian net exports nor net capital outflow

Answer 1

Answer:

Neither Saudi Arabian net exports nor net capital outflow

Explanation:

Net exports = exports - imports

If both exports and net imports grow at the same rate, net exports doesn't change.

Net capital outflow = buying of domestic assets by foreign buyers minus buying of foreign assets by domestic buyers.

Same logic as before; if both domestic assets being bought by foreigners and foreign assets bought by domestic buyers increase at the same rate, then the net capital outflow doesn't change.