Open Economy-S_I

Open Economy-S_I - Topic 3 Open Economy: Saving &...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Topic 3 Open Economy: Saving & Investment
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Saving, Investment, and International Flows of Goods & Assets Y = C + I + G + NX accounting identity Y C G = I + NX rearranging terms S = I + NX since S = Y C G S = I + NCO since NX = NCO
Background image of page 2
3 The Case of a Trade Surplus S = I + NX since S = Y C G S = I + NCO since NX = NCO We can rewrite this as: NX = S I = NCO . When the country experiences a trade surplus, exports are greater than imports and NX is positive. By the equation above, S > I , the excess funds flow abroad in the form of positive net capital outflow.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 The Case of a Trade Deficit S = I + NX since S = Y C G S = I + NCO since NX = NCO We can rewrite this as: NX = S I = NCO . When the country experiences a trade deficit, imports are greater than exports and NX is negative. By the equation above, S < I , so the nation borrows the difference from foreigners to finance some of the country’s investment, and NCO < 0.
Background image of page 4
5 Case Study: The U.S. Trade
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/28/2011 for the course ECON 011 taught by Professor Yezer during the Spring '07 term at GWU.

Page1 / 15

Open Economy-S_I - Topic 3 Open Economy: Saving &...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online