Exam 18: Open Economy Macroeconomics Basic Concepts: Part B

By itself,when a Japanese bank purchases a bond issued by a U.S.corporation,U.S.net capital outflow rises.

In an open economy national saving equals domestic investment plus net capital outflow.

Over the past six decades,the U.S.economy has experienced a dramatic increase in the relative importance of international trade and finance.

If U.S.residents purchase $450 billion of foreign assets and foreigners purchase $575 billion of U.S.assets,then the U.S.has net capital outflows of -$125 billion and a trade deficit of $125 billion.

When the central bank of some country prints large quantities of money,that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

If a country's saving rises,then either its investment or its net capital outflow rises (or both).

When a company from Germany builds an automobile factory in the United States,the German firm has engaged in foreign direct investment.

If a nation is selling more goods and services to foreigners than it is buying from them,then on net it must be selling assets abroad.

If purchases of foreign assets by U.S.residents exceed purchases of U.S.assets by foreign residents,then U.S.net capital outflow is positive.

A nation with a trade surplus will necessarily have saving that is greater than domestic investment.

If a German firm buys goods from a U.S.firm with dollars it obtains by exchanging euros for dollars,both U.S.net exports and U.S.net capital outflow increase.

Other things the same,if U.S.net capital outflow rises,so does U.S.saving.

For an economy as a whole,net exports must equal minus one times net capital outflow.

If the exchange rate is 80 yen per dollar,then a hotel room in Tokyo that costs 25,000 yen costs $200.

Other things the same,an increase in the foreign price level leads to an increase in the real exchange rate.

It is possible for a country to have domestic investment that exceeds national saving.

Movies are a major export of the U.S.

If a country sells more goods and services abroad than it purchases abroad,it has positive net exports and a trade surplus.

Other things the same,if the government reduced its budget deficit,the country's trade balance would rise.

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.