The use of relevant diagrams for presenting your answers is highly

recommended.

Question 1

Explain why net exports and net capital outflow are always equal.

Question 2

Explain why higher real interest rates lead to lower net capital outflow.

Question 3

Discuss whether each of the following groups would be happy or unhappy if the US dollar depreciated.

Part (a)

The People's Bank of China holding US government bonds.

Part (b)

The US manufacturing industry.

Part (c)

Mainland Chinese tourists planning a trip to the United States.

Part (d)

An American firm trying to purchase property in Hong Kong.