Chapter 18. - Chapter 18-International Trade. Think of y =...

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Chapter 18—International Trade. Think of y = c + I + g + (x –m) o X-m shows us the flow of goods and services. Net capital outflow shows us the flow of financial capital. o NCO. o This is equal to foreign assets bought domestically – domestic assets bought by foreigners. EX: What happens to net capital when outflow if the U.S. buys 50 cars from Japan. o NCO goes in the same way as exports. EX: What happens to NCO if the US sells cars to Mexico. o NCO increases. o When it goes up, NCO goes up, because we got a foreign asset (money). o NCO = FBD – DBF. EX: What happens if the US sells the 50 cars to Japan? o Initially, this raises our exports and we get 100 yen. o NCO = FBD – DBF. o If we use the yen to buy a Japanese stock. o We could then start an American factory. Saving equals investment. o Assumption: No foreign trade. If we relax this: I= (y- c- t) + (t-g) + (x-m) Y-c-g = private investment, private saving. Because saving equals investment,
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This note was uploaded on 04/24/2009 for the course ECON 2105h taught by Professor Staff during the Spring '08 term at University of Georgia Athens.

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Chapter 18. - Chapter 18-International Trade. Think of y =...

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