Intermediate macroeconomics chapt05

Chapter 5: The Open Economy International Trade A country’s participation is measured by the value of its – export as a percentage of GDP – Import as a percentage of GDP Data indicate that while international trade is important in the U.S., it is even more vital for other countries such as Canada and France International Trade National Income Accounting The GDP for an open economy: Y = C + I + G + NX Consumption = C Investment = I Government purchases = G Net Exports = NX (Exports less Imports) National Income Identity Y = C + I + G + NX Y – C – G = I + NX S = I + NX Where S = Y - C - G is National Savings Saving Investment Identity Equilibrium in the product market: S – I(r) = NX Net Foreign Investment = Trade Balance If S>I: foreign capital outflow; hence NX>0: trade surplus If Sr*, then S