Chapter 12 : Open-Economy Macroeconomics : Basic Concepts

Question 1

What is CLOSED ECONOMY ?

Answer 1

CLOSE ECONOMY : an economy that does not interact with other economies in the world.

Question 2

What is OPEN ECONOMY ?

Answer 2

OPEN ECONOMY : an economy that interacts freely with other economies around the world.

Question 3

What is the benefit to being open to international trade ?

Answer 3

Trade allows people to produce what they produce best and to consume the great variety of goods and services produced around the world.

Question 4

What is an EXPORTS ?

Answer 4

Exports is Goods and Services produced domestically and sold abroad.

Question 5

What is an IMPORTS?

Answer 5

Imports is Goods and Services produced abroad and sold domestically.

Question 6

What is the NET EXPORT (NX)

Answer 6

The Net Exports is the value of a nation’s exports minus the value of its imports. Net Export also called Trade Balance.

Question 7

What is the Trade Balance ?

Answer 7

Trade Balance is the value of a nation’s exports minus the value of its imports, also called net exports.

Question 8

What is Trade surplus ?

Answer 8

Trade Surplus : an excess of exports over imports.

If Net Exports (Exports-Imports) are positive, an exports are greater than imports, indicating that the country sells more goods and services abroad that it buys from other countries. –> the country is said to run a trade Surplus.

Question 9

What is Trade Deficits ?

Answer 9

Trade Deficits : an excess of imports over exports.

If Net Exports (Exports - Imports) are negative, exports are less than imports, indicating that the country sells fewer goods and services abroad than it buys from other countries. –> the country is said to run a trade deficit.

Question 10

What is Balance Trade ?

Answer 10

Balance Trade : a situation in which exports equal imports.

If Net Export (Exports-Imports) are ZERO, its exports and imports are exactly equal, and the country is said to have Balance trade