Question
If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets, then France’s net capital outflow is
a.
-.3 trillion euros, so it must have a trade surplus.
b.
-.3 trillion euros, so it must have a trade deficit.
c.
.3 trillion euros, so it must have a trade deficit.
d.
.3 trillion euros, so it must have a trade surplus.
a.
-.3 trillion euros, so it must have a trade surplus.
b.
-.3 trillion euros, so it must have a trade deficit.
c.
.3 trillion euros, so it must have a trade deficit.
d.
.3 trillion euros, so it must have a trade surplus.
Answers
GPT-4o mini
Net capital outflow (NCO) is calculated as the difference between the capital outflow (domestic residents purchasing foreign assets) and the capital inflow (foreigners purchasing domestic assets).
Given:
- Domestic residents of France purchase foreign assets = 1.2 trillion euros (outflow)
- Foreigners purchase French assets = 1.5 trillion euros (inflow)
The formula for net capital outflow is:
\[ \text{NCO} = \text{Outflow} - \text{Inflow} \]
Substituting the values:
\[ \text{NCO} = 1.2 \, \text{trillion euros} - 1.5 \, \text{trillion euros} = -0.3 \, \text{trillion euros} \]
Thus, France’s net capital outflow is -0.3 trillion euros. A negative net capital outflow indicates that capital inflows exceed outflows, which typically correlates with a trade deficit.
Thus, the answer is:
**b. -0.3 trillion euros, so it must have a trade deficit.**
Given:
- Domestic residents of France purchase foreign assets = 1.2 trillion euros (outflow)
- Foreigners purchase French assets = 1.5 trillion euros (inflow)
The formula for net capital outflow is:
\[ \text{NCO} = \text{Outflow} - \text{Inflow} \]
Substituting the values:
\[ \text{NCO} = 1.2 \, \text{trillion euros} - 1.5 \, \text{trillion euros} = -0.3 \, \text{trillion euros} \]
Thus, France’s net capital outflow is -0.3 trillion euros. A negative net capital outflow indicates that capital inflows exceed outflows, which typically correlates with a trade deficit.
Thus, the answer is:
**b. -0.3 trillion euros, so it must have a trade deficit.**