Chp 31

Chapter 31 is the beginning of macro-economics in open economies. A closed economy is an economy that does not interact with other economies in the world whereas an open economy does. An open economy interacts with other economies in two ways: it buys and sells goods and services in world product markets, and it buys and sells capital assets such as stocks and bonds in world financial markets. Exports are domestically produced goods and services that are sold abroad, and imports are foreign produced goods and services that are sold domestically. The net exports of any country are the difference between the value of a country's exports - the value of a country's imports. Net exports are also called trade balance since net exports can sell us whether a country is a buyer or seller in the world markets. If net exports are positive the country suns a trade surplus If negative then it is a trade deficit. If zero than the country has a balanced trade. Factors that influence a country's net exports are 1.) the tastes of consumers for domestic and foreign goods 2.) the prices of goods at home and abroad 3.) the exchange rates at which people can use domestic currency to buy foreign currency 4.) the income of consumers at home and abroad 4.) the cost of transporting goods from country to country and 5.) government policies toward international trade. Net capital outflow refers to the difference between purchase of foreign assets by domestic residents and the purchase of domestic assets by foreigners.