Principles of Economics- Mankiw (5th) 641

Principles of Economics- Mankiw (5th) 641 - CHAPTER 29...

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CHAPTER 29 OPEN-ECONOMY MACROECONOMICS: BASIC CONCEPTS 663 Mexican government has imposed, or might impose in the future, on foreign investors in Mexico. THE EQUALITY OF NET EXPORTS AND NET FOREIGN INVESTMENT We have seen that an open economy interacts with the rest of the world in two ways—in world markets for goods and services and in world financial markets. Net exports and net foreign investment each measure a type of imbalance in these markets. Net exports measure an imbalance between a country’s exports and its imports. Net foreign investment measures an imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners. An important but subtle fact of accounting states that, for an economy as a whole, these two imbalances must offset each other. That is, net foreign investment ( NFI ) always equals net exports ( NX ): NFI ± NX. This equation holds because every transaction that affects one side of this equation
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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