notes17 - 13 Open-Economy Macroeconomics: Basic Concepts 1...

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Open-Economy Macroeconomics: Basic Concepts 13
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International flows of goods and capital: summary 1 2 Trade deficit Balanced trade Trade surplus Exports < Imports Net Exports < 0 Y < C + I + G Saving < Investment Net Capital Outflow < 0 Exports = Imports Net Exports = 0 Y = C + I + G Saving = Investment Net Capital Outflow = 0 Exports > Imports Net Exports > 0 Y > C + I + G Saving > Investment Net Capital Outflow > 0 This table shows the three possible outcomes for an open economy.
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Past two decades Borrowed heavily in world financial markets To finance large trade deficits Before 1980, Small net capital outflow After 1980 National saving - fell substantially below investment Net capital outflow - a large negative number Capital inflow Is the U.S. trade deficit a national problem? 3
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Changes in capital flows Arise from changes in saving Arise from changes in investment 1980 to 1987 Increase flow of capital Decline in national saving Decline public saving » Increase in government budget deficit Is the U.S. trade deficit a national problem? 4
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1991 to 2000 Increase flow of capital Saving increased Budget surplus Investment increased 2000 to 2006 Increase in capital flow Investment boom – abated Budget deficits National saving - fell to extraordinarily low levels Is the U.S. trade deficit a national problem? 5
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2 6 Panel (a) shows national saving and domestic investment as a percentage of GDP. You can see from the figure that national saving has been lower since 1980 than it was before 1980. This fall in national saving has been reflected primarily in reduced net capital outflow
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notes17 - 13 Open-Economy Macroeconomics: Basic Concepts 1...

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