Macro (EC102)_ Net Exports 2
Macro (EC102)_ Net Exports 2 EC102
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This 3 page Study Guide was uploaded by Linda Perks on Monday February 29, 2016. The Study Guide belongs to EC102 at Boston University taught by Watson in Spring 2016. Since its upload, it has received 45 views. For similar materials see Macroeconomics in Economcs at Boston University.
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Date Created: 02/29/16
Zara Mahmood Oct 22, 2013 EC102 Lecture 11: Net Exports (NX) cont. THE US IN THE INTERNATIONAL ECONOMY Increase in trade is result of: Falling costs of shipping products around the world Spread of inexpensive and reliable communications Changes in government policies Tariff – A tax imposed by a government on imports Imports – Goods and services bought domestically but produced in other countries Exports – Goods and services produced domestically but sold in other countries The Importance of Trade to the US Economy US consumers buy increasing quantities of foreign goods and services US businesses sell increasing quantities of goods and services to foreign countries Increasing importance for US trade Percentage of total production (GDP) o Steadily rising as a fraction of US GDP US International Trade in a World Context US is largest exporter in the world Other large export countries are also high-income o Excluding china International trade is less important to America than other countries o Imports and exports account for more than half of GDP Net Exports – Exports – Imports X – IM Trade Surpluses & Deficits NX – Measures the imbalance in a country’s trade in goods and services Trade deficit – An excess of imports over exports Trade Surplus – An excess of exports over imports Balanced trade – exports = imports Determinants of Exports Exports depend on Real exchange rate (e) GDP of our trading partners (YFOR) o Their buying depends on how much they are making Tastes and preferences of people abroad for our goods and services Trade policies Export Function Zara Mahmood Oct 22, 2013 EC102 X = ƒ (e, YR, taste, trade policies) e X e X YFORX YFOR X Determinants of Imports Imports depend on Real exchange rate (e) Domestic GDP (YDOM ) Domestic tastes and preferences for foreign goods Trade policies Import Function DOM IM = ƒ (e, Y , taste, trade policies) e IM e IM DOM Y IM YDOM IM Net Exports ƒ (e, YOR, YOM, taste, trade policies) eX , IM NX e X , IM NX YFOR X NX FOR Y X NX YDOM IM NX YDOM IM NX R and NX rUS (relative to r in the ROW) Demand for $-denominated assets Demand for $ E e X IM Some Exchange Rates Are Not Determined by the Market Some currencies have fixed exchange rates Do not change over a long period of time How Movements in the Exchange Rate Affect Exports and Imports Zara Mahmood Oct 22, 2013 EC102 Market value for $ increase foreign currency price of US exports rise $ price for foreign imports falls o Depreciation increase exports and decrease imports (increase NX) o Appreciation decrease exports and increase imports (decrease NX)
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