Macroeconomics Definitions Chapter 18

Important variables that influence net capital outflow

*The real interest rates paid on foreign assets *The real interest rates paid on domestic assets *The perceived economic and political risks of holding assets abroad *The government policies that affect foreign ownership of domestic assets

Factors that might influence a country's exports, imports, and net exports

*The tastes of consumers 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 cost of transporting goods from country to country *Government policies toward international trade

Y- C- G = I + NX or S = I + NX or S = I + NCO

National saving (S) equals Y - C - G

NCO =

Net Capital Outflow = Purchase of foreign assets by domestic residents - Purchase of domestic assets by foreigners

...

Net exports = Value of country's exports - Value of country's imports.

Real Exchange Rate =

Nominal exchange rate * Domestic price ------------------------------------------------------ Foreign price

Y = C + I + G + NX.

The economy's gross domestic product (Y) is divided among four components: consumption (C), investment (I), government purchases (G), and net exports (NX)

depreciation

a decrease in the value of a currency as measured by the amount of foreign currency it can buy

balanced trade

a situation in which exports equal imports

purchasing-power parity

a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries

closed economy

an economy that does not interact with other economies in the world

open economy

an economy that interacts freely with other economies around the world

trade surplus

an excess of exports over imports

trade deficit

an excess of imports over exports

appreciation

an increase in the value of a currency as measured by the amount of foreign currency it can buy

imports

goods and services that are produced abroad and sold domestically

exports

goods and services that are produced domestically and sold abroad

net exports

spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports); the value of a nation's exports minus the value of its imports; also called the trade balance

net capital outflow

the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners

nominal exchange rate

the rate at which a person can trade the currency of one country for the currency of another

real exchange rate

the rate at which a person can trade the goods and services of one country for the goods and services of another

trade balance

the value of a nation's exports minus the value of its imports; also called net exports