When an economy becomes attractive to global investors, sparking ...

[kshipps]

When an economy becomes attractive to global investors, sparking a capital inflow, one result is often a decrease in net exports. Why?
 
  What will be an ideal response?

Question 2

Applying neoclassical theory to the housing market, a higher marginal product of (housing) capital may be caused by ________.
 
  A) higher expected household income
  B) the inability to buy as much housing at a higher price
  C) an expected increase in the relative price of housing
  D) a decrease in the cost of building new houses

[aham8f]

Answer to Question 1

The capital inflow reflects an increase in desired investment in the economy. With no change in desired saving, and total output fixed in the short run, the increase in investment spending must either displace exports or increase spending on imports, causing net exports to fall.

Answer to Question 2

A

[kshipps]

Great answer, keep it coming

[diana chang]

Excellent