An open economy interacts with the rest of the world through its involvement in

Question

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 Capital Out flow Net Exports In other words, if a transaction directly affects the left side of this equation, then it must also affect the right side. The following problem will help you understand why this identity must hold Suppose you are a software engineer living in the United States, and you just sold your latest product to a Russian consumer for RUB 7,000 Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy, and enter your results in the following table. If the direction of change is "No change," enter "O" in the Magnitude of Change column. Hint: The magnitude of change should always be positive, regardless of the direction of change.

Explanation / Answer

Ans

Exports increase Magnitude=Rub 7000

Imports no change mantude no change

Net exports Increase Amount Rub 7000

Increase in usa net exports....... By fall

you store rubble in safety deposit is right answer

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