Class Notes (837,968)
Canada (510,603)
Economics (1,617)
ECON 1BB3 (535)
Lecture 20

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Department
Economics
Course
ECON 1BB3
Professor
Hannah Holmes
Semester
Winter

Description
Lecture 20 Example 1) I buy a car from U.S. for $30,000 NX = exports – imports Imports going up by 30k  NX going down by 30k Case #1 I sent maple syrup NX = exports – imports Imports go up by 30k because the $30,000 car comes into Canada. Exports go up by 30k because the maple syrup is sent to U.S. This means no change in NX Case #2 I send $30k (Canadian) NCO = domestic purchases of foreign assets – foreign purchases of domestic assets When I send out the $30k, it means foreigners are purchasing Canadian assets. Therefore the foreign purchases of domestic assets will go up. This means the outflow (NCO) will go down by $30k. With that being said, the change in NCO is equal to the change in NX  both going down by $30k. Case #3 I send $30k (U.S.) NCO = domestic purchases of foreign assets – foreign purchases of domestic assets The domestic ownership of the foreign assets is going down because I am selling the U.S. dollars. The decrease in the domestic purchases of foreign assets will also mean a decrease in the outflow (NCO). Exchange rates • Nominal exchange rate: the rate at which you can exchange one currency for another • “e” – how much foreign currency you can purchase with $1 Canadian dollar • e goes up - $CAD appreciates • e goes down - $CAD depreciates If the Canadian dollar appreciates (stronger Canadian dollars), those in Canada who wants to buy stuff in other countr
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