When an Australian oil company purchases oil from Singapore and the Singaporean firm uses the proceeds from its sale of oil to Australia to buy Australian government debt, Australian _____ and there is a capital _____ to/from Australia.[Fill in the blank]Single choice
A
a. imports increase; outflow
B
b. imports decrease; inflow
C
c. imports increase; inflow
D
d. exports increase; outflow

Question

When an Australian oil company purchases oil from Singapore and the Singaporean firm uses the proceeds from its sale of oil to Australia to buy Australian government debt, Australian _ and there is a capital _ to/from Australia.[Fill in the blank]Single choice

A

a. imports increase; outflow

B

b. imports decrease; inflow

C

c. imports increase; inflow

D

d. exports increase; outflow

BlackTom AI · Accepted Answer

Imports rise because Australia purchases oil from Singapore, and the Singaporean firm's purchase of Australian government debt using the sale proceeds is a capital inflow into Australia.

1) Relevant knowledge points and concepts
- Balance of payments has two main parts relevant here: the current account (trade in goods and services) and the financial/capital account (cross-border purchases of assets).
- Buying a good from abroad increases a country’s imports (a debit in the current account).
- When a foreigner buys domestic financial assets (like government bonds), that is a capital/financial account credit — i.e., a capital inflow to the domestic country.
- Double-entry bookkeeping: a current account deficit (import payment) can be offset by a financial account surplus (capital inflow).

2) Step-by-step reasoning
- Step 1: The Australian oil company pays Singapore for oil. That transaction increases Australian imports (more goods coming into Australia).
- Step 2: The Singaporean firm now has Australian dollars (or a claim) from the sale and uses those proceeds to buy Australian government debt.
- Step 3: The Singaporean purchase of Australian government bonds means funds flow into Australia to buy domestic assets — this is a capital/financial inflow.

3) Numerical illustration (intermediate steps)
- Suppose Australia pays $100 to Singapore for oil: Current account records an import of $100 (a -$100 entry).
- Singapore invests that $100 by buying Australian bonds: Financial account records +$100 (capital inflow).
- Net entries balance: -$100 (current) + $100 (financial) = 0, consistent with balance-of-payments accounting.

4) Why the correct answer is correct
- Imports increase: because Australia bought oil from Singapore.
- Capital inflow: because Singapore used the sale proceeds to purchase Australian government debt, bringing capital into Australia.

5) Why other options are incorrect
- (a) “imports increase; outflow”: wrong because the foreign purchase of domestic debt is an inflow, not an outflow.
- (b) “imports decrease; inflow”: wrong because imports actually increase, not decrease.
- (d) “exports increase; outflow”: wrong on both counts — exports did not increase, and the transaction produces an inflow, not an outflow.

6) Conclusion
Therefore the correct choice is c. imports increase; inflow, which matches the provided answer.

When an Australian oil company purchases oil from Singapore and the Singaporean firm uses the proceeds from its sale of oil to Australia to buy Australian government debt, Australian _ and there is a capital _ to/from Australia.[Fill in the blank]Single choice

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