ECON 1BB3 Lecture Notes - Capital Outflow, Real Interest Rate, Automotive Products
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Economics 1BB3 March 5th, 2013: (Start of Chapter 12)
Net Exports (Trade balance): Exports – imports
Exports: Goods and services that are produced domestically and sold abroad
Imports: Goods and services that are produced abroad and sold domestically
What affects the trade balance?
Factors affecting the trade balance:
1. Tastes (Foreign/domestic goods)
2. Prices (Foreign/domestic goods)
3. Exchange Rates
4. Income (Foreign/domestic goods)
5. Transportation Costs
6. Government trade policies
Question: Which industry is the largest in terms of Canadian exports?
a) Energy Products
b) Industrial goods and materials
c) Machinery and equipment
d) Automotive products
e) Agricultural products
Net Capital outflow
Net Capital Outflow (NCO): The purchase of the foreign assets by domestic
residents minus the purchase of domestic assets by foreign residents
-Net capital outflow is also called “net foreign investment” (NFI)
What affects Net Capital Outflow?
Factors affecting net capital outflow include:
1. Real interest rate on domestic/foreign assets
2. Economic and political risk of holding assets abroad
3. Government policies affecting foreign ownership of domestic assets
Types of foreign investment:
Foreign direct investment: A capital investment that is owned and operated by a
foreign entity -> Day-to-day control management decisions
Foreign portfolio investment: An investment that is financed by a foreign entity,
but operated by domestic residents.
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