Net Capital Outflow and Foreign Investments

Whose purchase, by itself, decreases Austria's net capital outflow?

a. Carl's

b. Carly's

c. both Carl's and Carly's

d. neither Carl's nor Carly's

Answer:

The correct answer is option A, Carl's purchase. Net capital outflow refers to the difference between a country's total investments abroad and the total investments made in the country by foreign entities.

In this scenario, Carl's purchase of stock in an Austrian corporation represents an outflow of capital from the US to Austria, as he is investing in a foreign company. On the other hand, Carly's opening of a coffee shop in Austria represents an inflow of capital from the US to Austria, as she is investing in an Austrian business. Therefore, only Carl's purchase affects Austria's net capital outflow, as it represents a decrease in the total amount of capital flowing out of Austria.

Carly's investment does not have a significant impact on Austria's net capital outflow, as it is offset by the inflow of capital from her coffee shop. It's important to note that net capital outflow is just one factor that can affect a country's economic growth and stability. Other factors, such as trade policies, government spending, and interest rates, also play a significant role in shaping a country's economic landscape.