central bank prints
When the ________ large quantities of money, that money loses value both in terms of the goods and services it can buy and in terms of the number of other currencies it can buy.
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Closed economy: an economy that does not interact with other economies in the world* Open economy: an economy that interacts freely with other economies around the world ________ The International Flows of Goods and Capital The Flow of Goods: Exports, Imports, and Net Exports* Exports: goods and services produced domestically and sold abroad* Imports: goods and services produced abroad and sold domestically* Net exports: the value of a nations exports minus the value of its importance, also called the trade balance* Net exports= Value f countrys exports- Value of countrys imports* Trade balance: the value of a nations exports minus the value of its imports, also called net exports* Trade surplus: an excess of exports over imports* Trade deficit: an excess of imports over exports* Balanced trade: a situation in which exports equal imports* Influencers working against exports, imports, and net exports* Consumer tastes* Prices of goods at home and abroad* Exchange rates* Incomes of consumers* Costs of transportation of products* Government policies The Flow of Financial Resources: Net Capital Outflow* Net capital outflow: the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners* Purchase of foreign assets by domestic residents- Purchase of domestic assets by foreigners* Often called the net foreign investment, net capital outflow can be positive or negative* Variables that might influence net capital outflow:* The real interest rates paid on foreign assets* The real interest rates paid on domestic assets* The perceived economic and political risks of holding assets abroad* The government policies that affect foreign ownership of domestic assets The Equality of Net Exports and Net Capital Outflow* NCO= NX* Net capital outflow= Net exports* The equation is an identity* A trade surplus (NX> 0)
NCO
Closed economy
_______: an economy that does not interact with other economies in the world
Imports
_____________: goods and services produced abroad and sold domestically
Exports
_____________: goods and services produced domestically and sold abroad
The Flow of Goods
__________________: Exports, Imports, and Net Exports
Open economy
_____________: an economy that interacts freely with other economies around the world
Trade balance
_____________: the value of a nation’s exports minus the value of its imports, also called net exports
Balanced trade
________: a situation in which exports equal imports
Trade deficit
_____________: an excess of imports over exports
Trade surplus
______________: an excess of exports over imports
Law of one price
______________-: a good must sell for the same price in all locations, otherwise there would be opportunities for profit left unexploited
Arbitrage
_________: the process of taking advantage of price differences for the same item in different markets