* Closed Economy
* Open Economy
•Flow of good
•exports
-goods/services
-produced domestically
-sold abroad
•imports
-produced abroad
-sold domestically
•net exports/ trade balance
-value of nation's exports
-minus value of imports
•trade surplus
-excess of exports over imports
•trade deficit
-imports over exports
•balanced trade
-exports equal imports
•Factors
-tastes of consumers
-prices of goods home and abroad
-exchange rates
-incomes of consumers
-cost of transporting goods from country to country
-gov't policies toward international trade
•Flow of financial resources
•Net Capital Outflow
-purchase of foreign assets by domestic residents
-minus the purchase of domestic assets by foreigners
•Variables that influence net capital outflow
-real interest rates paid on foreign and domestic assets
-perceived economic and political risks of holding assets abroad
-government policies that affect foreign ownership of domestic assets
•Equality of NX & NCO
•NX
-imbalance between exports and imports
•NCO
-imbalance between amount of foreign assets and amount of domestic assets
•NCO=NX
•When NX>0 (trade surplus)
-selling more good and services to foreigners than buying from them
•When NX<0 (trade deficit)
-buying more goods and services from foreigners than selling to them
•Open Economy: Y=C+I+G+NX
•Savings: S=Y-C-G
S=I+NX
•NX=NCO
-S=I+NCO
-Saving= Domestic Investment+Net Capital Outflow
•Trade Surplus: Exports>Imports
-NX>0; Y>C+I+G; S>I; NCO>0
•Balanced Trade: Exports=Imports
-NX=0; Y=C+I+G; S=0; NCO=0
•Trade Deficits: Exports<Imports
-NX<0; Y<C+I+G; S<0; NCO<0
