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 Trade Surplus Balanced trade An excess of imports over exports An excess of exports over imports 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 X e YFOR taste trade policies Zara Mahmood Oct 22 2013 EC102 e X e X YFOR X 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 IM e YDOM taste trade policies e IM e IM YDOM IM YDOM IM Net Exports e YFOR YDOM taste trade policies e X IM NX e X IM NX YFOR X NX YFOR 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 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 Zara Mahmood Oct 22 2013 EC102
View Full Document
Unlocking...