ECON 1BB3 Study Guide - Final Guide: Monetary Policy, Economic Forecasting, Overnight Rate

• School: McMaster University
• Department: Economics
• Course: ECON 1BB3
• Professor: Bridget O' Shaughnessy

Document Summary

The flow of financial resources net capital outflow (nco) the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners. Trade surplus selling (domestic to foreign) more than buying (foreign to domestic) nx > 0: uses foreign currency to buy foreign assets capital outflow nco > 0. Trade deficit buying (foreign to domestic) more than selling (domestic to foreign) nx < 0: sells assets abroad to finance purchases capital inflow nco < 0. Saving = domestic investment + net capital outflow. S = i + nco: s > i + nco, s < i - nco. The nation is using some of it"s saving to buy assets abroad. Foreigners purchase domestic assets which finance some of the nations investments (in closed economy because nco = 0) Nominal exchange rate the rate at which a person can trade the currency of one country for the currency of another.