Principles of Economics- Mankiw (5th) 643

Principles of Economics- Mankiw (5th) 643 - CHAPTER 29...

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Unformatted text preview: CHAPTER 29 OPEN-ECONOMY MACROECONOMICS: BASIC CONCEPTS 665 Total expenditure on the economy’s output of goods and services is the sum of expenditure on consumption, investment, government purchases, and net exports. Because each dollar of expenditure is placed into one of these four components, this equation is an accounting identity: It must be true because of the way the vari- ables are defined and measured. Recall that national saving is the income of the nation that is left after paying for current consumption and government purchases. National saving ( S ) equals Y C G. If we rearrange the above equation to reflect this fact, we obtain Y C G I NX S I NX. Because net exports ( NX ) also equal net foreign investment ( NFI ), we can write this equation as S I NFI Saving Domestic Net foreign investment investment. actually happened in recent years, it is al- most completely untrue. Rapidly growing Third World econ- omies have indeed increased their ex- ports of manufactured goods. But todayports of manufactured goods....
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