a. The purchase of \(2 billion worth of crude oil from ARAMCO by SINOPEC in China would increase China's imports and decrease its net exports (NX). At the same time, Saudi Arabia buying \)1 billion of weaponry products from China would increase China’s exports and increase its net exports (NX). However, Saudi Arabia investing $1 billion in buying the stock of TENCENT would result in a capital outflow from China and increase China’s net capital outflow (NCO). Therefore, the effects on China’s NX and NCO would be:
Net Exports (NX) = Exports - Imports
Initial NX: unknown
Change in NX = (\(1 billion - \)2 billion) = -$1 billion (decrease)
Final NX: unknown
Net Capital Outflow (NCO) = Domestic Investment Abroad - Foreign Investment in the Domestic Economy
Initial NCO: unknown
Change in NCO = (-\(1 billion + \)1 billion) = 0
Final NCO: unknown
b. Saudi Arabia selling \(2 billion worth of crude oil to SINOPEC in China would increase its exports and increase its net exports (NX). At the same time, it buying \)1 billion of weaponry products from China would decrease its net exports (NX). However, Saudi Arabia investing $1 billion in buying the stock of TENCENT would result in a capital outflow from Saudi Arabia and decrease its net capital outflow (NCO). Therefore, the effects on Saudi Arabia’s NX and NCO would be:
Net Exports (NX) = Exports - Imports
Initial NX: unknown
Change in NX = (\(2 billion - \)1 billion) = +$1 billion (increase)
Final NX: unknown
Net Capital Outflow (NCO) = Domestic Investment Abroad - Foreign Investment in the Domestic Economy
Initial NCO: unknown
Change in NCO = (\(1 billion - \)1 billion) = 0
Final NCO: unknown
