Principles of Economics- Mankiw (5th) 642

Principles of Economics- Mankiw (5th) 642 - 664 PA R T E L...

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664 PART ELEVEN THE MACROECONOMICS OF OPEN ECONOMIES flow of goods and services and the international flow of capital are two sides of the same coin. SAVING, INVESTMENT, AND THEIR RELATIONSHIP TO THE INTERNATIONAL FLOWS A nation’s saving and investment are, as we have seen in Chapters 24 and 25, cru- cial to its long-run economic growth. Let’s therefore consider how these variables are related to the international flows of goods and capital, as measured by net exports and net foreign investment. We can do this most easily with the help of some simple mathematics. As you may recall, the term net exports first appeared earlier in the book when we discussed the components of gross domestic product. The economy’s gross domestic product ( Y ) is divided among four components: consumption ( C ), investment ( I ), government purchases ( G ), and net exports ( NX ). We write this as Y ± C ² I ² G ² NX. W
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