Topic 9 - Saving and Investment in an Open Economy Flashcards
What are Net Exports (NX)?
Net exports is also called the trade balance or the balance of trade. It is calculated by taking the total value of all exports for a country and taking away the value of all the imports of the country.
What is a trade deficit?
A trade deficit (current account deficit) is a situation in which net exports (NX) are negative.
What is a trade surplus?
a trade surplus (current account surplus) is a situation in which net exports (NX) are positive.
What is the current account?
The current account includes the net exports (NX) and the current money inflows and outflows (i.e. dividends paid to NZ owners of foreign companies [inflows] and vice versa).
What is the capital account?
The capital account is the change in asset holdings in NZ by Kiwis and foriegners.
What does the term “Investment inflow” mean?
Investment inflow refers to foreigners investing within NZ. Foreigners own more NZ assets.
What does the term “Investment outflow” mean?
Investment outflow refers to New Zealanders investing overseas. NZ citizens own more financial assets abroad.
True/False: The balance of investment inflows and outflows is all that is important.
False. Sometimes it is imperative that we look at the change in net ownership.
What is Net Foreign Investment (NFI)?
Net Foreign Investment is the difference between Investment Outflow and Inflow.
NFI = Outflow - Inflow
When the Net Exports (NX) changes what must also change with it?
Net Foreign Investment. NX = NFI. E.g. When people sell goods to NZ, they gain NZD, if they do not then spend that NZD on exported goods, they are likely to put it in a bank and invest it.
The difference between Savings and Investment is also known as?
Net Foreign Investment (NFI). If there is more investment than savings the money must come from overseas and vice versa.
True/False: NX = NFI = S - I .
True.
