Economics (Fach) / Open-Economy Macroeconomics: Basic Concepts (Lektion)
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Open-Economy Macroeconomics: Basic Concepts
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- Net exports are also called the trade balance
- Net exports are also called the trade balance
- A trade deficit is a situation in which net exports (NX) are negative.
- A trade surplus is a is a situation in which net exports (NX) are positive. • Exports > Imports
- Balanced trade refers to refers to when net exports are zero—exports and imports are exactly equal.
- Factors That Affect Net Exports Consumer tastes for domestic and foreign goods. The prices of goods at home and abroad. The exchange rates at which people can use domestic currency to buy foreign currencies. The incomes of consumers at home and abroad. The costs of transporting goods from country to country. The policies of the government toward international trade.
- Net capital outflow refers to the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners.
- When a UK resident buys shares in BMW, the German car company, the purchase raises UK net capital outflow.
- When a Japanese resident buys a bond issued by the UK government, the purchase reduces the UK net capital outflow.
- For an economy as a whole, NX and NCO must balance each other so that: Net exports (NX) net capital outflow (NCO) NCO = NX
- National saving is the income of the nation that is left after paying for current consumption and government purchases: Y - C - G = I + NX ( open economy) Y-C-G= I (closed economy)
- trade deficit export < import net exports < 0 saving < investment net captial outflow < 0
- balanced trade = exports = imports net exports= 0 Y= C+I+G Savings= investments
- trade surplus exports>imports net exports>0 Savings> Investmetns
- The two most important international prices are the nominal exchange rate and the real exchange rate.
- The nominal exchange rate is the rate at which a person can trade the currency of one country for the currency of another.
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- Appreciation refers to an increase in the value of a currency as measured by the amount of foreign currency it can buy.
- Depreciation refers to a decrease in the value of a currency as measured by the amount of foreign currency it can buy.
- The real exchange rate is the rate at which a person can trade the goods and services of one country for the goods and services of another.
- The real exchange rate is a key determinant of how much a country exports and imports. Real exchange rate = Nominal exchange rate x Domestic price / Foreign price
- A depreciation (fall) in the UK real exchange rate Means that UK goods have become cheaper relative to foreign goods. This encourages consumers both at home and abroad to buy more UK goods and fewer goods from other countries. As a result, UK exports rise, and UK imports fall, and both of these changes raise UK net exports.
- An appreciation in the UK real exchange rate Means that UK goods have become more expensive compared to foreign goods. • UK net exports fall.
- According to the theory of purchasing power parity, a unit of currency should buy the same quantity of goods in all countries.