Open-Economy Macroeconomics: Basic Concepts (Mobile-Enabled) | Read Chapter 13 |
ID: 1106170 • Letter: O
Question
Open-Economy Macroeconomics: Basic Concepts (Mobile-Enabled) | Read Chapter 13 | Back to Assign Due Attempts: Average: /2 4. Net capital outflow and net exports An open economy interacts with the rest of the world through its involvement in world markets for goods and services and world financial markets. Although it can often result in an imbalance in these markets, the following identity must remain true: Net Capitol Outflow = Net Exports In other words, if a transaction directy affects the left side of this eapation, then it must also affect the right side. The folowing problem will help you understand why this identity must hold 80,000. Determine the effects of this transaction on exports, imports, and net expo in the US, economy, and enter your results in the following table. If the direction of change is no change, . enter "O" n the Magnitude of Change coumn. 9Explanation / Answer
Note that you have sold your inventory to another firm outside the United States which is therefore categorised as Exports. There are no exchanges of goods and services form Bangkok which means there are no imports. We know that that net exports is the difference of exports and imports. Since there are no imports we will have a positive net Exports
Therefore exports increases imports show no change and finally net exports increases. The magnitude will be 80000 for exports, 0 for imports and 80000 for net Exports
The increase in the net exports of the United States will be equally matched by the increase in the net capital outflows.
The second option is true because the identity has to be maintained and if net exports are increasing net capital outflows will occur.
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