Kiara is a web designer living in Illinois. She creates and sells a website to Gabrielle who is living in Germany. Gabrielle pays Kiara 5,000 euros for the website. If Kiara keeps the 5,000 euros at home, NCO

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Question restatement: Kiara, a web designer in Illinois, sells a website to Gabrielle in Germany for 5,000 euros. If Kiara keeps the 5,000 euros at home, NCO

Option analysis:

Option 1: falls
- This would imply that net capital outflow decreases. However, simply receiving payment from a foreign resident for a domestic service and then holding the funds domestically does not by itself cause a reduction in past or future cross-border capital movements. The act of earning euros from a foreign buyer and choosing to retain them domestically does not create a new pattern of outward investment or offset an outward investment; it doesn’t automatically reduce cross-border capital flows. Thus, this option is not supported by the basic definition of NCO.

Option 2: rises
- This would mean there is an increase in net capital outflow (more funds moving to foreign assets or sending capital abroad). Keeping euros at home does not constitute increasing outward investment or capital transfers to foreign entities; it simply preserves liquidity domestically. Since there is no additional cross-border investment or lending triggered by keeping the euros, NCO would not rise.

Option 3: doesn't change
- NCO measures the net flow of funds for acquiring foreign vs. domestic assets by residents. In this scenario, Kiara has sold a domestic asset to a foreign buyer, which affects the current account with the receipt of payment. If she then holds the euros domestically, she is not channeling funds abroad or increasing foreign asset ownership; the cross-border financial position remains unchanged in net terms because no new capital is being moved overseas. Therefore, NCO does not change as a result of Kiara simply keeping the euros at home.

Summary:
- The fall or rise of NCO would require explicit changes in cross-border asset transactions or net lending/borrowing behavior. Merely preserving the sale proceeds domestically doesn’t create an additional international capital movement, so the most accurate assessment is that NCO does not change.

Kiara is a web designer living in Illinois. She creates and sells a website to Gabrielle who is living in Germany. Gabrielle pays Kiara 5,000 euros for the website. If Kiara keeps the 5,000 euros at home, NCO

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