Chapter 5

Chapter 5 - Kimberly Zhang Chapter 5 Y = Cd Id Gd EX C = Cd...

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Kimberly Zhang Chapter 5 Y = C d + I d + G d + EX, C = C d + C f , I = I d + I f , G = G d + G f o Y = (C - C f ) + (I - I f ) + (G - G f ) + EX o Y = C + I + G + EX – (C f + I f + G f ) = C + I + G + EX – IM o NX = Y – C – I – G (Net exports = Output – Domestic Spending) o Y – C – G = S S – I = NX Net exports is the trade balance, since it tells us how our trade in goods and services departs from the benchmark of equal imports and exports o S – I = net capital outflow = amount that domestic residents are lending abroad – the amount foreigners are lending to us If positive, S > I; if negative, S < I NX positive trade surplus; NX negative trade deficit o The national income accounts identity shows that the international flow of funds to finance capital accumulation and the international flow of goods and services are two sides of the same coin If S > I, saving that is not invested domestically is used to make loans to foreigners Foreigners require these loans because we are providing them with more goods and services Small open economy o Perfect capital mobility: residents of the country have full access to world financial markets Government does not impede international borrowing or lending
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This note was uploaded on 09/13/2009 for the course 220 204 taught by Professor Clare during the Spring '08 term at Rutgers.

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Chapter 5 - Kimberly Zhang Chapter 5 Y = Cd Id Gd EX C = Cd...

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