Question

If U.S. residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of U.S. assets,
a.

U.S. net capital outflow is -$300 billion; capital is flowing out of the U.S.
b.

U.S. net capital outflow is $300 billion; capital is flowing out of the U.S.
c.

U.S. net capital outflow is $300 billion; capital is flowing into the U.S.
d.

U.S. net capital outflow is -$300 billion; capital is flowing into the U.S.

Answer 1

To calculate U.S. net capital outflow, you can use the following formula:

\[
\text{Net Capital Outflow} = \text{Foreign Purchases of U.S. Assets} - \text{U.S. Purchases of Foreign Assets}
\]

In this case, U.S. residents purchase $600 billion worth of foreign assets, and foreigners purchase $300 billion worth of U.S. assets:

\[
\text{Net Capital Outflow} = 300 \text{ billion} - 600 \text{ billion} = -300 \text{ billion}
\]

A negative net capital outflow indicates that more capital is flowing into the U.S. than out. Therefore, the correct answer is:

**d. U.S. net capital outflow is -$300 billion; capital is flowing into the U.S.**