Chapter 31 -- Carlos Pitta

Net capital outflow equals domestic residents

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Net capital outflow equals domestic residents’ purchases of foreign assets minus foreigners’ purchases of domestic assets. Every international transaction involves the exchange of an asset for a good or service, so net exports equal net capital outflow. Saving can be used to finance domestic investment or to buy assets abroad. Thus, saving equals domestic investment plus net capital outflow. 0
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CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 43 CHAPTER SUMMARY The nominal exchange rate is the relative price of the currency of two countries. The real exchange rate is the relative price of the goods and services of the two countries. 0
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CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 44 CHAPTER SUMMARY According to the theory of purchasing-power parity, a unit of any country’s currency should be able to buy the same quantity of goods in all countries. This theory implies that the nominal exchange rate between two countries should equal the ratio of the price levels in the two countries. It also implies that countries with high inflation should have depreciating currencies. 0
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