Ch 18 Open Economy Macroeconomics Flashcards
An economy that does not interact with other economies
closed economy
An economy that interacts freely with other economies around the world
open economy
domestically produced goods and services that are sold abroad
exports
foreign-produced goods and services that are sold domestically
imports
the difference between the value of a country’s exports and the value of its imports
net exports
Net exports are also called ____ _____
trade balance
If a country exports more than it imports, the country is said to run a ___ _____
trade surplus
If a country sells fewer goods and services abroad than it buys from other countries, the country is said to run a _____ _______
trade deficit
If net exports are zero, the country is said to have _____ ______
balanced trade
What is net capital outflow?
the difference between the purchase of foreign assets by domestic residents and the purchase of domestic assets by foreigners
When net capital outflow is negative, a country is experiencing a
capital inflow
Net Capital Outflow = Net Exports
it’s an identity
In an open economy,
Y-C-G=I+NX
S=I+NX
S=I+NCO
In other words, when a US citizen saves a dollar of her income, that dollar can be used to finance the accumulation of domestic capital or it can be used to finance the purchase of foreign capital.
none
An open economy has two uses for its saving:
(1) domestic investment and (2) net capital outflow
The rate at which a person can trade the currency of one country for the currency of another
nominal exchange rate