a) Suppose the net export of goods is $200 and the net export of services is $-150. What is the net capital outflow?

b) Holding national saving constant, does an increase in net capital outflow increase, decrease, or have no effect on a countrys accumulation of domestic capital? Explain.

c)

i) State the Purchasing Power Parity (PPP) condition.

ii. Suppose a can of soda costs $0.5 in the United States and 12 pesos in Mexico. What would be the peso-dollar exchange rate if the PPP condition holds?

iii. If The PPP holds and the inflation rate of country A is expected to be 7% lower than that of country B, what will be the expected change in the value of the currency of country A against that of country B?