Chapter 32 - A Macroeconomic Theory of the Open Economy

budget deficit

When a government ________ represents a negative public saving, national saving is decreased.

Net capital outflow

________ does NOT depend on the exchange rate.

NCO

When ________ <0, there is a net inflow of capital and the demand for domestically generated loanable funds falls.

Political instability

________ makes people cautious of the economy, so they move assets out of the country and abroad, causing capital flight.

Capital flight

________: a large and sudden reduction in the demand for assets located in a country.

Domestic investment

Saving= ________ + net capital outflow.

Import quota

________ → limit on the quantity of a good produced abroad that can be sold domestically.

Trade policy

________: government policy that directly influences the number of goods and services that a country imports or exports.

NCO

When ________> 0, there is a net outflow of capital, and demand for domestically generated loanable funds rises.

Capital flight

________ from Mexico increases Mexican interest rates and decreases the value of the Mexican peso in the market for foreign currency exchange.

Trade policies

________ do not affect the trade balance on a macroeconomic scale.

Saving

_________ = Domestic investment + net capital outflow