If a country has positive net capital outflows, then its net exports are[Fill in the blank]

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BlackTom AI · Accepted Answer

The question asks about the relationship between positive net capital outflows and net exports, and what that implies about saving and domestic investment.
Option a: negative net exports and saving smaller than domestic investment. This would imply more spending on foreign goods than income, i.e., trade deficit, which contradicts the given condition of positive net capital outflows. In standard national income accounting, a trade balance corresponding to capital outflows is not consistent with a negative net export here.
Option b: positive net exports and saving larger than domestic investment. Positive net capital outflows imply the country is lending abroad, which corresponds to a current account surplus (net exports positive). In savings-investment terms, if saving exceeds domestic investment, the excess saving can be lent abroad, resulting in positive net capital outflows and positive net exports. This aligns with the national accounting identity: NCO = NX and S - I. When S > I, NCO > 0 and NX > 0, so both positive.
Option c: positive net exports and saving smaller than domestic investment. If saving were smaller than investment, the country would be borrowing domestically or abroad to fund investment, which would typically correspond to negative net capital outflows (or positive net capital inflows), not positive outflows. This contradicts the given condition.
Option d: negative net exports and saving larger than domestic investment. Negative net exports would imply a current account deficit, which would usually correspond to negative net capital outflows (net capital inflows) in standard accounting, not positive net outflows, so this is inconsistent with the premise.
In summary, the correct alignment with positive net capital outflows is a trade surplus (positive net exports) arising from saving exceeding domestic investment, so option b captures the correct relationship.

If a country has positive net capital outflows, then its net exports are[Fill in the blank]

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