Net Exports

3 Key excerpts on "Net Exports"

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  eBook - PDF

  Macroeconomics for Managers

  • Michael K. Evans(Author)
  • 2008(Publication Date)
  • Wiley-Blackwell

    (Publisher)

  Obviously they are worse off. For the overall economy, though, the offsetting factors – less expensive products for consumers and other businesses, which enables them to purchase larger quantities of other goods and services – mean a net benefit occurs. Conversely, it is difficult for any economy to function optimally if interest rates and exchange rates are not near their equilibrium levels. The value of the dollar should be set near its purchasing power parity, which means the average cost of producing a market basket of world-traded goods and services in the US is the same as the cost of producing that market basket of goods in a trade-weighted average of other countries. That does not mean the cost of production will be the same for each good and each industry; only that the weighted average cost is the same; in more colloquial terms, firms face a “level playing field.” The importance of Net Exports occurs more through their influence on supply-side factors, notably inflation and productivity, than through their impact on aggregate demand. If the dollar is undervalued, Net Exports may temporarily rise, but eventually productivity growth will suffer and inflation will rise. If the dollar is overvalued, manufacturing output will decline and unemployment will rise. These statements THE INTERNATIONAL ECONOMY 401 are also true for other countries, with the additional caveat that other countries do not have the luxury of running a sizable trade deficit indefinitely. Our treatment of the international sector proceeds as follows. First, we establish definitions and describe the data for Net Exports, the current and capital account surplus or deficit, and the value of the dollar. That is followed by a brief explanation of the factors that determine exports and imports, and the importance of foreign trade on productivity and inflation as well as aggregate demand.

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  eBook - PDF

  Macroeconomics as a Second Language

  • Martha L. Olney(Author)
  • 2011(Publication Date)
  • Wiley

    (Publisher)

  The trade balance is positive, and there is a trade surplus. When imports are greater than exports, the trade balance is negative and there is a trade deficit. A distinction is sometimes made between trade in goods and trade in services. The balance of trade in goods (also called the merchandise trade balance) equals exports of goods minus imports of goods. The balance of trade in services equals exports of services minus imports of services. The balance on current account measures the flow of funds in goods and ser- vices transactions, plus payments for factor incomes, plus international transfer payments. Payments for factor incomes include wages paid to someone working in a foreign country and rent, interest income, or dividends paid to someone whose assets are being used in a foreign country. Wages paid to a U.S. resident working in Canada represent a flow of funds out of Canada and into the United States. Div- idends paid to a Mexican resident who owns stock in a U.S. corporation represent a flow of funds from the United States to Mexico. Net factor income in the United States equals factor income received by U.S. residents from foreign sources minus factor income paid by U.S. sources to foreign residents. The third and final component of the balance on current account is international transfer payments — payments between individuals in two 290 Chapter 16 Open Economy Macroeconomics different countries for which nothing but gratitude is received in exchange. Many international transfer payments are remittances: money sent by a worker to family or others living in another country. The balance on current account is thus money flowing in for three purposes—to pay for goods and services, to pay factors of production, and for transfer payments received from abroad—minus money flowing out for the same three purposes. Equivalently, the balance on current account is the trade balance plus net factor income plus net international transfer payments.

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  Principles of Macroeconomics for AP® Courses 2e

  • Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
  • 2017(Publication Date)
  • Openstax

    (Publisher)

  In most high-income economies, goods comprise less than half of a country’s total production, while services comprise more than half. The last two decades have seen a surge in international trade in services; however, most global trade still takes the form of goods rather than services. The current account balance includes the trade in goods, services, and money flowing into and out of a country from investments and unilateral transfers. 9.2 Trade Balances in Historical and International Context The United States developed large trade surpluses in the early 1980s, swung back to a tiny trade surplus in 1991, and then had even larger trade deficits in the late 1990s and early 2000s. As we will see below, a trade deficit necessarily means a net inflow of financial capital from abroad, while a trade surplus necessarily means a net outflow of financial capital from an economy to other countries. 9.3 Trade Balances and Flows of Financial Capital International flows of goods and services are closely connected to the international flows of financial capital. A current account deficit means that, after taking all the flows of payments from goods, services, and income together, the country is a net borrower from the rest of the world. A current account surplus is the opposite and means the country is a net lender to the rest of the world. 9.4 The National Saving and Investment Identity The national saving and investment identity is based on the relationship that the total quantity of financial capital supplied from all sources must equal the total quantity of financial capital demanded from all sources.

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