ECN 204 Chapter 12: Chapter 12.docx

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bluejackal172

14 Apr 2012

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Trade allows people to produce what they produce best and to consume a greater variety of goods and services. Closed economy: what economists often assume, an economy that does not interact with other economies. Open economy: an economy that interacts freely with other economies around the world. The flow of goods: exports, imports, and net exports. Exports: domestically produced goods and services that are sold abroad. Imports: foreign produced goods and services that are sold domestically. Net exports: value of its exports minus the value of its imports: net exports = value of country"s export value of country"s imports. Trade balance: another name for net exports, the value of a nation"s exports minus the value of its imports. Trade surplus: the excess of exports over imports. Trade deficit: an excess of imports over exports. Balanced trade: a situation in which exports equal imports. The flow of financial resources: net capital outflow. Buying stocks in toyota, flow of capital.

Related Questions

How can trade enhance the economic well-being of a nation?

a) trade puts downward pressure on the prices of all goods

b) trade results in an increase in total surplus compared with a closed economy

c) the gains of domestic producers of a good exceed the losses of domestic consumers of the good, regardless of whether the nation imports or exports the good in question

d)both domestic producers and domestic consumers become better off with trade, regardless of whether the nation imports or exports the good in question.

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12. “Exports and imports” refer to A. the transfer of goods and services between countries B. the flow of economic capital between countries C. the flow of pollution between countries D. flows of foreign currencies across countries

An open economy interacts with the rest of the world through its involvement in world markets for goods and services and world financial markets. Although it can often result in an imbalance in these markets, the following identity must remain true:

Net Capital OutflowNet Capital Outflow

= =

Net ExportsNet Exports

In other words, if a transaction directly affects the left side of this equation, then it must also affect the right side. The following problem will help you understand why this identity must hold.

Suppose you are a software engineer living in the United States, and you just sold your latest product to a Russian consumer for RUB 7,000.

Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy, and enter your results in the following table. If the direction of change is "No change," enter "0" in the Magnitude of Change column.

Hint: The magnitude of change should always be positive, regardless of the direction of change.

Increase/no change/decrease

Imports

Increase/no change/decrease

Net Exports

Increase/no change/decrease

Because of the identity equation that relates to net exports, the in U.S. net exports is matched by in U.S. net capital outflow. Which of the following is an example of how the United States might be affected in this scenario? Check all that apply.

You store the rubles in your safety deposit box at home.

You purchase RUB 7,000 worth of stock in a Russian corporation.

You buy RUB 7,000 worth of Russian bonds.

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ECN 204 Chapter 12: Chapter 12.docx

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