ECO 1102 Lecture 12: Chapter 12

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One of the ten principles of economics highlighted in chapter 1 is that trade can make everyone better off. Closed economy: an economy that does not interact with other economies in the world. Open economy: an economy that interacts freely with other economies around the world. Exports: goods and services that are produced domestically and sold abroad. Imports: goods and services that are produced abroad and sold domestically. Net exports (or trade balance): the value of a nation"s exports minus the value of its imports. Trade surplus: an excess of exports over imports. Trade deficit: an excess of imports over exports. Balanced trade: a situation in which exports equal imports. Net capital outflow: the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners. The equality of net exports & net capital outflow. Net exports measure an imbalance between a country"s exports and its imports.

Related Questions

In an open economy, national saving equals domestic investment:

(i) plus the net outflow of capital abroad.

(ii) minus the net exports of goods and services.

(iii) plus the government's budget deficit.

(iv) minus foreign portfolio investment.

ochretrout186

In an open economy, national saving equals domestic investment

A. Minus the net exports of goods and services.

B. Plus the government's budget deficit.

C. Minus foreign portfolio investment.

D. Plus the net outflow of capital abroad.

greylocust46

5. Saving and net flows of capital and goods In a closed economy, saving and investment must be equal, but this is not the case in an open economy. In the following problem, you will explore how saving and investment are connected to the international flow of capital and goods in an economy. Before delving into the relationship between these various components of an economy, you will be asked to recall some relationships between aggregate variables that will be useful in your analysis. Recall the components that make up GDP. National income (Y) equals total expenditure on the economy's output of goods and services. Thus, where C = consumption, I = investment, G = government purchases, X = exports, M = imports, and NX = net exports: Y = Also, national saving is the income of the nation that is left after paying for . Therefore, national saving (S) is defined as: S = Rearranging the previous equation and solving for Y yields Y = . Plugging this into the original equation showing the various components of GDP results in the following relationship: S = This is equivalent to S = , since net exports must equal net capital outflow (NCO, also known as net foreign investment). Now suppose that a country is experiencing balanced trade. Determine the relationships between the entries in the following table, and enter these relationships using the following symbols: > (greater than), < (less than), or = (equal to). Outcomes of Balanced Trade Imports Exports 0 Net Exports Y C+I+G Investment Saving Net Capital Outflow 0

ochreduck773

ECO 1102 Lecture 12: Chapter 12

ECO 1102 Full Course Notes

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