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Chapter 5 Econ 202 Notes Looking for notes in .doc form and not .ppt? This is what you're looking for. With diagrams and and pictures from the textbook as well as Vaughn's in-class notes, this is the perfect set of study notes

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Maryann Vaughan

The Open EconomyCanada has a very open economyIn an Open Economyspending need not equal outputsaving need not equal investment Preliminaries dfdfdfCCCGGGIII EXexportsforeign spending on domestic goods f f fIMimportsCIG spending on foreign goods NXnet exports aka the trade balance EXIMGDPExpenditure on Domestically Produced Goods and ServicesTrade Surpluses and Deficits trade surplus outputspending andexportsimportsSize of the trade surplusNX trade deficit spendingoutput andimportsexportsSize of the trade deficit NXFrom the National Accounting Identity YCIG NX Subtract C and G from both sides YCGINX Recall S YCG Therefore SINX Solve for NX NXSI Trade BalanceExcess of savings over investmentInternational Capital FlowsNet capital outflowoSIonet outflow of loanable funds onet purchases of foreign assets the countrys purchases of foreign assetsminus foreign purchases of domestic assetsWhen S Icountry is a net lenderWhen S Icountry is a net borrowerNXSISI is the difference between domestic savings and domestic investmentSI is called the Net Capital Outflow NCONCOamount of foreign lendingamount of foreign borrowingSince NXSI and o NCOSI then o NXNCO The Link between NX YC I G NXYCIG implies NXYCGI oSItrade balancenet capital outflow
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