Open Economy

Open Economy - Topic 2 Open Economy: The Flow of Goods...

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1 Topic 2 Open Economy: The Flow of Goods & Services and The Flow of Capital
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2 Closed vs. Open Economies A closed economy does not interact with other economies in the world. An open economy interacts freely with other economies around the world.
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3 Trade Surpluses & Deficits NX measures the imbalance in a country’s trade in goods and services. Trade deficit : an excess of imports over exports Trade surplus : an excess of exports over imports Balanced trade : when exports = imports
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4 What Influences Net Exports? Incomes of consumers at home and abroad Consumers’ preferences for foreign and domestic goods Prices of goods at home and abroad The exchange rates at which foreign currency trades for domestic currency Transportation costs Government policies
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U.S. Net Exports, 1947-2008
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6 The Flow of Capital Net Capital Outflow (NCO) : domestic residents’ purchases of foreign assets minus foreigners’ purchases of domestic assets NCO is also called net foreign investment .
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This note was uploaded on 02/28/2011 for the course ECON 011 taught by Professor Yezer during the Spring '07 term at GWU.

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Open Economy - Topic 2 Open Economy: The Flow of Goods...

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