ECON 1BB3 Chapter 12: Chapter 12 – Open economy macro- basic concepts.docx

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silvergerbil904

11 Apr 2012

School

McMaster University

Department

Economics

Course

ECON 1BB3

Professor

Bridget O' Shaughnessy

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ECON 1BB3 Full Course Notes

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Document Summary

Closed economy: an economy that does not interact with other economies in the world. Open economy: an economy that interacts freely with other economies around the world. The flow of goods: exports, imports and net exports. Exports: goods and services that are produced domestically and sold abroad. Imports: goods and services that are produced abroad and sold domestically. Net exports: the value of a nation"s exports minus the value of its imports, also called the trade balance. Trade surplus: an excess of exports over imports. Trade deficit: an excess of imports over exports. Balanced trade: a situation in which exports equal imports. The flow of financial resources: net capital outflow. Net capital outflow: the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners. Foreign direct investment - domestic owner still manages the investment. Foreign portfolio investment i. e. buying stock in a foreign company.

Related Questions

Exports of goods & services	$1000
Imports of goods & services	$800
The net change in assets owned abroad	$590
The net change in foreign-owned assets at home	$400
Unilateral transfers received	$100
Unilateral transfers paid	$200
Investment income paid to foreigners	$300
Investment income received from foreigners	$400
The balance on the capital account	$0

1. The balance on the current account is A) $100. B) $200. C) 0. D) - $100

2. The balance on the financial account is A) -$90. B) -$190. C) $100. D) $200

3. The statistical discrepancy is A) -$5. B) $5. C) $10. D) -$10

4. From the domestic economy's perspective,

A) there is a net international capital inflow equal to $190.

B) there is a net international capital outflow equal to $190.

C) the net international capital flow is zero.

D) its domestic absorption exceeds its GNP by $200.

orangewildebeest926

How can trade enhance the economic well-being of a nation?

a) trade puts downward pressure on the prices of all goods

b) trade results in an increase in total surplus compared with a closed economy

c) the gains of domestic producers of a good exceed the losses of domestic consumers of the good, regardless of whether the nation imports or exports the good in question

d)both domestic producers and domestic consumers become better off with trade, regardless of whether the nation imports or exports the good in question.

lavenderyellowjacket825

International trade is advantageous because trade makes it possible for people in each country to:

A) import and export

B) export more than they import

C) employ more of their domestic resources producing things that are costly for them to produce domestically

D) acquire goods from foreigners more economically than they could be produced domestically

E) do all of the above