New version page

USC ECON 205 - Open Economy Macroeconomics

Upgrade to remove ads

This preview shows page 1 out of 2 pages.

Save
View Full Document
Premium Document
Do you want full access? Go Premium and unlock all 2 pages.
Access to all documents
Download any document
Ad free experience

Upgrade to remove ads
Unformatted text preview:

I. Open-Economy MacroeconomicsOpen-economy macroeconomics is the study of how economies behave when trade and financial linkages among nations are considered. Ergo, when calculating the gross domestic product X, net exports, has to be added.The foreign trade involves imports, which are goods produced abroad and consumed domestically, and exports, which are goods produced domestically and consumed abroad. Net exports are exports minus imports.II. Net foreign investment and importsNet foreign investment denotes the net U.S. savings abroad and is approximately equal to net exports. Imports are positively related to U.S. income and output. When GDP rises, imports into the US increase. The demand for imports depends on the relative price of foreign and domestic goods. Hence, the volume and value of imports will be affected by domestic output and relative prices of domestic and foreign goods.ECON 205 2nd Edition Lecture 18 Outline of Last Lecture I. Current Economic Issue: The Fiscal ClifII. Exchange rate systemIII. Marginal Propensity to Import and the Open EconomyIV. Aggregate Supply and Labor ForceV. UnemploymentVI. Inflation and its efectsOutline of Current LectureI. Open-Economy MacroeconomicsII. Net foreign investment and importsIII. Government annual budgetIV. Fiscal policy and the fiscal clifV. Deficit and DebtJ.B. Say’s LawCurrent Lecture I. Open-Economy Macroeconomics Open-economy macroeconomics is the study of how economies behave when trade and financial linkages among nations are considered. Ergo, when calculating the gross domestic product X, net exports, has to be added.- The foreign trade involves imports, which are goods produced abroad and consumed domestically, and exports, which are goods produced domestically and consumed abroad. Net exports are exports minus imports.II. Net foreign investment and imports Net foreign investment denotes the net U.S. savings abroad and is approximately equal to net exports. Imports are positively related to U.S. income and output. When GDP rises, imports into the US increase. The demand for imports depends on the relative price of foreign and domestic goods. Hence, the volume and value of imports will be afected by domestic output and relative prices of domestic and foreign goods.III. Government annual budgetGovernment annual budget: The fiscal year is from September to the following September. A budget surplus for the year means that tax revenues are greater than expenditure, while deficit means expenditures are greater than tax revenues.IV. Fiscal policy and the fiscal clifFiscal policy is the function of the current administration. Congress puts together a budget for the following year, and then goes through the budget to negotiate with Congress. The main function of fiscal policy is taxes and expenditures. Currently, the president wants to raise taxes on the wealthy, mainly on income.The fiscal clif is the ongoing problem with the US debt. Even though most plans call for tax decrease and expenditure increase, macroeconomic theory supports the opposite. V. Deficit and DebtDeficit refers to one fiscal year, which in the United States goes from September to September. Debt refers to the total account that is permanent. Additionally, economists measure debt according to the debt ratio: the debt of the country over the total GDP. An internal debt is when the American government borrows from its citizens, while external is from abroad. Government debt displaces private investment. Actual budget records revenues, public expenditures, deficit, or surplus in a given period. Structural budget however records what the revenues, expenditures, deficit or surplus would beif the economy was operating at its potential output. Lastly, cyclical budget is the diference between actual and structural budget.VI. J.B. Say’s LawJ.B. Say’s Law (1803) Supply creates its own demand, and overproduction is impossible. “Products are paid for by products”, and that any glut will be resolved through more market activity.Income is a dynamic concept that deals with the amount of money per unit of time (i.e. month).Wealth is the total amount of money a unit has, and is


View Full Document
Download Open Economy Macroeconomics
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Open Economy Macroeconomics and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Open Economy Macroeconomics 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?