ECN 204 Lecture Notes - Capital Outflow
22 Apr 2012
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Document Summary
Closed economy does not interact with other economies in the world. Open economy interacts freely with other economies around the world. It buys and sells goods and services in world product markets. Its buys and sells capital assets in world financial markets. Net exports (nx), aka the trade balance = value of exports value of imports. What do you think would happen to canadian net exports if: (falling incomes, rising unemployment) Canadian net exports would fall due to a fall in american consumers" purchases of canadian exports. Canadian net exports would rise due to a fall in imports. This makes canadian goods more attractive relative to mexico"s goods. Exports to mexico increase, imports from mexico decrease, so canadian net exports increase. Prices of goods produced in mexico rise faster than prices of goods produced in canada. Canadian consumers decide to be patriotic and buy more products made in canada . Consumers" preferences for foreign and domestic goods.
