The Open Economy: International Trade and Finance C+I+G+(X-M)

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Presentation transcript:

The Open Economy: International Trade and Finance C+I+G+(X-M)

Too much too fast!!

Lets break this down a bit. Try Khan Academy k7A&list=PLAEA5E9ACA1508F92 k7A&list=PLAEA5E9ACA1508F92

Trade Balance American Exports In 2013 $1.579 T In 2014 $2.343 T Machinery: $213,108,199,000 (13.5% of total exports) Electronic equipment: $165,604,449,000 (10.5%) Mineral fuels including oil: $148,426,743,000 (9.4%) Vehicles excluding trains and streetcars: $133,640,479,000 (8.5%) Aircraft and spacecraft: $115,380,944,000 (7.3%) American Imports In 2013 $2.330 T In 2014 $2.851 T Oil $389,300,000,000 (16.7% of total imports) Machinery $311,200,000,000 (13.4%) Electronic Equipment $303,500,000,000 (13%) Vehicles $253,300,000,000 (10.9%) Medical and Technical Equipment $72,100,000,000 (3.1%)

Current Trade Deficit in November 2014 was -$39 B

Why does the USA trade?

Comparative Advantage ProductCountry ACountry B Wheat20050 TVs10050

Current Account page #412 Balance of payments on goods and services plus net international transfer payments and factor income

Capital (Financial) Accounts Measures international sales of financial assest Stocks, securities, savings bonds Capital inflows and outflows

Loanable Funds Market

Current account + Capital account = 0 If there is a current account deficit (X<M) than capital inflows will be greater then capital outflows The Chinese have to invest those US dollars back in America If there is a current account surplus (X>M) than capital outflows will be greater then capital inflows. (What to do with the foreign currency we hold?)

The FOREX Graph

Why does demand shift? Changes in tastes and preferences Changes in Price Level Changes in Income Changes in Real Interest Rates

Supply and Demand Move Together What happens when Americans want more Japanese goods? Dollar Market Yen Market

Currency Value Appreciation Demand Increases Supply Decreases Foreigners Love American Products Higher Interest Rates in US Higher Foreign Inflation Rates Depreciation Demand Decreases Supply Increases US Cuts taxes Tariffs on American Products FED buys government securities