Question

How do each of the following transactions affect: (1) the trade surplus or deficit for the United States AND (2) capital inflows or outflows for the United States a. A U.S. exporter sells software to Israel. She uses the Israeli shekels received to buy stock in an Israeli company The U.S. export creates a trade surplus and the purchase of Israeli stock creates a capital outflow NX (trade balance) 0 Kl (net capital inflows) 0 NX+ K 0. b. A Mexican firm uses proceeds from its sale of oil to the United States to buy US government debt The purchase of Mexican oil creates a trade deficit and the Mexican purchase of U.S. bonds creates a capital inflow NX (trade balance) (Click to select V o. KI (net capital inflows) (Click to select 0 NX+KIEV C. A Mexican firm uses proceeds from its sale of oil to the United States to buy oil drilling equipment from a U.S. firm The purchase of oil from Mexico and the Mexican purchase of drilling equipment does not create a trade deficit or surplu does create a capital (Click to select NX (trade balance) (Click to select 0. Kl {net capital inflows) (Click to select y o. NX+KIE 0 land

Answer 1

a. The U.S. export creates a trade surplus and the purchase of Israeli stock creates a capital outflow.

NX > 0

KI <0.

NX + KI = 0

b. The purchase of Mexican oil creates a trade deficit and the Mexican purchase of U.S. bonds creates a capital inflow.

NX< 0.

KI > 0.

NX + KI =0.

c. The purchase of oil from Mexico and the Mexican purchase of drilling equipment does not create a trade (Click to select)deficit or surplus and does not create a capital inflow or outflow.

NX= 0.

KI = 0.

NX + KI =0.