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Canada (158,168)
Economics (923)
ECN 204 (281)
Chapter 12

Chapter 12.docx

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Ryerson University
ECN 204
Christos Shiamptanis

Chapter 12 Open Economy Macroeconomics Basic ConceptsTrade allows people to produce what they produce best and to consume a greater variety of goods and servicesClosed economy what economists often assume an economy that does not interact with other economiesOpen economy an economy that interacts freely with other economies around the world The International Flows of Goods and Services The Flow of Goods Exports Imports and Net ExportsExports domestically produced goods and services that are sold abroadImports foreign produced goods and services that are sold domesticallyNet exports value of its exports minus the value of its importso Net ExportsValue of countrys exportValue of countrys importsTrade balance Another name for net exports the value of a nations exports minus the value of its importsTrade surplus the excess of exports over importsTrade deficit an excess of imports over exportsBalanced trade a situation in which exports equal importsFactors that might influence a countrys exports imports and net exports o Tastes of consumers for domestic and foreign goods o Prices of goods at home and abroad o Exchange rates at which people can use domestic currency to buy foreign currencies o Incomes of consumers at home and abroad o Cost of transporting goods from country to country o Government policies toward international trade The Flow of Financial Resources Net Capital OutflowBuying a Toyota flow of goodsBuying stocks in Toyota flow of capitalNet capital outflow net foreign investment Purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners o Net capital outflowpurchase of foreign assets by domestic residentsPurchase of domestic assets by foreignersForeign direct investment eg Tim Hortons opens a fast food outlet in RussiaForeign portfolio investment eg Canadian buys stock in a Russian corporation o Both purchases increase Canadian net capital outflowWhen net capital outflow is negative domestic residents are buying less foreign assets than foreigners are buying domestic assets capital flowing into country
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