Principles of Economics- Mankiw (5th) 670

Principles of Economics- Mankiw (5th) 670 - 692 PA R T E L...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
692 PART ELEVEN THE MACROECONOMICS OF OPEN ECONOMIES net exports. This conclusion seems less surprising if one recalls the accounting identity: NX ± NFI ± S ² I. Net exports equal net foreign investment, which equals national saving minus domestic investment. Trade policies do not alter the trade balance because they do not alter national saving or domestic investment. For given levels of national saving and domestic investment, the real exchange rate adjusts to keep the trade balance the same, regardless of the trade policies the government puts in place. Although trade policies do not affect a country’s overall trade balance, these policies do affect specific firms, industries, and countries. When the U.S. govern- ment imposes an import quota on Japanese cars, General Motors has less competi- tion from abroad and will sell more cars. At the same time, because the dollar has appreciated in value, Boeing, the U.S. aircraft maker, will find it harder to compete with Airbus, the European aircraft maker. U.S. exports of aircraft will fall, and U.S.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

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.

Ask a homework question - tutors are online