Question

Colonial America had little industry and so had mostly raw materials to export. At the same time, there were many opportunities to purchase capital goods and earn a high rate of return because there was little existing capital so that the marginal product of capital was relatively high. What does this suggest about net exports and net capital outflow in colonial America?

Answer 1

Ans: Net exports were negative in Colonial America because the value of exports was low because they mostky exported raw materials and they were really importing capital goods; If the net exports were negative, net capital outflow must also have been negative. Net capital outflow would have been negative, because the colonies sold stocks, bonds and other domestic assets to buy capital goods from abroad. Although the marginal product of capital was very high of too little capital but the value of exported goods were low as they were mostly exporting raw materials and importing capitalised goods, so overall value of net exports were negative.