Open economy Flashcards
1
Q
National savings
A
Income of the nation that is left after paying for current consumption and government purchases
Y=C+I+G+NX
S=Y-C-G
So S=I+NX
2
Q
PPP holds when
A
Currencies aren’t over or under valued
3
Q
Nominal ER
A
Increase in value currency measured by amount of foreign currency it can buy
4
Q
Real ER=
A
(Nominal ER - Domestic P) / foreign P
5
Q
Power parity
A
‘Law of 1 price’
6
Q
Limitations of PPP
A
Many G’s aren’t easily traded/shipped from 1 county to another
Tradable goods aren’t always perfect substitutes when produced in diff countries
7
Q
Net capital outflow
A
Purchase foreign assets by domestic residents (-) purchase of domestic assets by foreigners
