1The Open The Open EcoomyEcoomyChapter 5P’ OTuitional EBA Macroeconomics2The International Flows of Capital and Goods•We begin our study of open-economy macroeconomics by taking another look at national income accounting, which we discussed in chapter 2.•The role of Net ExportsÎIn an open economy, some output is sold domestically, and some is exported to be sold abroad.•We can divide expenditure into 4 componentsdddYCIGEX=+++3•The sum of the first three terms, Cd+ Id+ Gd, is domestic spending. The fourth term, EX, is foreign spending on domestic goods and services.•Note that domestic spending on all goods is the sum of domestic spending on domestic goods and on foreign goods.•Hence,•We substitute those three equations into the identity:YdfIII=+dfGGG=+superscripts:d=spending on domestic goodsf=spending on foreign goods()()()fffCCIIGGEX=−+−+−+4•We can rearrange to obtainY = C + I + G + EX – (Cf+ If+ Gf)Y = C + I + G + EX – IMY = C + I + G + NX•The national income accounts identity shows how domestic output, domestic spending, and net exports are related. In particular,NX= Y–(C+ I+ G) Net export = Output –Domestic spending•If output exceeds domestic spending, we export the difference: net exports are positive.•If output falls short of domestic spending, we import the difference: net exports are negative.
has intentionally blurred sections.
Sign up to view the full version.