8 THE FLOW OF GOODS EXPORTS IMPORTS AND NET EXPORTS THE OPENNESS OF THE

8 the flow of goods exports imports and net exports

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8 THE FLOW OF GOODS: EXPORTS, IMPORTS AND NET EXPORTS
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THE OPENNESS OF THE AUSTRALIAN ECONOMY 9
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The flow of financial resources Net foreign investment refers to the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners . When an Australian resident buys shares in British Telecom, the purchase raises Australian net foreign investment. ( Increase NFI Our resident buys foreign shares) When a Japanese resident buys a bond issued by the Australian government, the purchase reduces Australian net foreign investment. (decrease NFI foreign investments buy Singapore shares) 2 forms of NFI FDI (directly involve in the country by bringing $ and establishing project) FPI (Foreign investments set up business here in sg, broker help him to run business here) 10
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Variables that influence net foreign investment (NFI): the real interest rates being paid on foreign assets the real interest rates being paid on domestic assets (S’pore real R/I low invest outside NFI increase) the perceived economic and political risks of holding assets abroad (political stability increase, NFI increase) the government policies tha t affect foreign ownership of domestic assets. (Decrease NFI if gov discourages ownership) 11 THE FLOW OF FINANCIAL RESOURCES
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The equality of current and capital Accounts The current account measures an imbalance between a country’s net exports (NX) as well as the net flow of income (NY) and net flow of transfers (NT): CAB = NX + NY + NT For an economy as a whole, NFI and CAB must balance each other so that: NFI = CAB The capital and financial acc measure an imbalance between the acct if foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners NFI therefore, CAB = NFI 12
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Saving, investment and International Flows Gross National Disposable Income (GNDY): GNDY = GDP + NY (Net income) + NT (Net transfer) GNDY = C + I + G + NX + NY + NT 13 GDP
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Saving, investment and International Flows 14
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National saving, domestic investment and net foreign investment 15
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National saving, domestic investment and net foreign investment 16
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Nominal exchange rates 17
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Nominal exchange rates Appreciation refers to an increase in the value of a currency as measured by the amount of foreign currency it can buy.
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