Open-Economy Macroeconomics: Basic Concepts,1, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Basic Concepts,Closed economy Economy that does not interact with other economies in the world Open economy Economy that interacts freely with other economies around the world,2, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,International Flow of Goods,Exports Goods & services Produced domestically Sold abroad Imports Goods and services Produced abroad Sold domestically,3, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,International Flow of Goods,Net exports Value of a nations exports Minus the value of its imports Also called trade balance Trade balance Value of a nations exports Minus the value of its imports Also called net exports,4, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,International Flow of Goods,Trade surplus Excess of exports over imports Trade deficit Excess of imports over exports Balanced trade Exports equal imports,5, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,International Flow of Goods,Factors that influence a countrys exports, imports, and net exports: Tastes of consumers for domestic & foreign goods Prices of goods at home and abroad Exchange rates People use domestic currency to buy foreign currencies Incomes of consumers at home and abroad,6, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,International Flow of Goods,Factors that influence a countrys exports, imports, and net exports: Cost of transporting goods from country to country Government policies toward international trade,7, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,The increasing openness of the U.S. economy,Increasing importance of international trade and finance 1950s, imports and exports: 4-5% of GDP Recent years: Exports increased more than twice Imports increased more than three times,8, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,The increasing openness of the U.S. economy,Increase in international trade Improvements in transportation Advances in telecommunications Technological progress Governments trade policies NAFTA GATT,9, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Figure 1,10, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,The Internationalization of the U.S. Economy,This figure shows exports and imports of the U.S. economy as a percentage of U.S. gross domestic product since 1950. The substantial increases over time show the increasing importance of international trade and finance.,International Flow of Capital,Net capital outflow Purchase of foreign assets by domestic residents Foreign direct investment Foreign portfolio investment Minus the purchase of domestic assets by foreigners,11, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,