CHAPTER18Macroeconomicsin an Open EconomyChapterOutlineandLearningObjectives4F80席2F60席3F80席18.1TheBalanceofPayments:M2208Linking the United Statesto外儿the International Economy一18.2 TheForeign Exchange新3了时种低McDonald'sMarketandExchangeRatesMcnonalds18.3 TheInternationalSectorandNational Saving andInvestment18.4 TheEffectofaGovernmentBudgetDeficitonInvestment18.5 MonetaryPolicy andFiscalPolicy inanOpenEconomy
1 Chapter Outline and Learning Objectives 18.1 The Balance of Payments: Linking the United States to the International Economy 18.2 The Foreign Exchange Market and Exchange Rates 18.3 The International Sector and National Saving and Investment 18.4 The Effect of a Government Budget Deficit on Investment 18.5 Monetary Policy and Fiscal Policy in an Open Economy CHAPTER 18 CHAPTER Macroeconomics in an Open Economy
Linkagesbetween CountriesUntil now, we have mostly ignored the linkages between countries atthe macroeconomic level.But countries are linked:· By trade in goods and services. By flows of financial investmentIn this chapter, we will consider howthese linkages work, and whatthe implications are for fiscal and monetary policy.@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 2 Linkages between Countries Until now, we have mostly ignored the linkages between countries at the macroeconomic level. But countries are linked: • By trade in goods and services • By flows of financial investment In this chapter, we will consider how these linkages work, and what the implications are for fiscal and monetary policy
TheBalanceofPayments:Linking the United States to the International Economy18.1LEARNINGOBJECTIVEExplainhowthebalanceofpaymentsiscalculated.@2015PearsonEducafion,lnc
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 3 The Balance of Payments: Linking the United States to the International Economy 18.1 Explain how the balance of payments is calculated
OpenEconomiesToday it is routine for consumers, firms, and investors to interact withtheircounterparts inforeign countries.A country that has interactions in trade or finance with other countriesis known as an open economy, as opposed to a closed economywhich has no interactions in trade or finance with other countries.No economy is completely closed;though afew countries,suchasNorth Korea, have limited foreign economic interactions.@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 4 Open Economies Today it is routine for consumers, firms, and investors to interact with their counterparts in foreign countries. A country that has interactions in trade or finance with other countries is known as an open economy, as opposed to a closed economy, which has no interactions in trade or finance with other countries. • No economy is completely closed; though a few countries, such as North Korea, have limited foreign economic interactions
U.S.BalanceofPayments,2012CURRENTACCOUNTA good way to understandExports ofgoods$1,561economicinteractionswith-2.303Imports ofgoodsother countries is by-742Balance of trade649Exportsofservicesexamining the balance of-443Importsofservicespayments (BoP): the record207Balance ofservicesof a country's trade with other776Incomereceivedoninvestmentscountries in goods, services,-552Income payments on investments224and assets.Netincomeon investments-130NettransfersIt is composed of the current-440Balanceon current accountaccount: the record of theFINANCIALACCOUNTcountry's net exports,Increaseinforeignholdingsofassetsin544theUnitedStatesnetincome oninvestmentsIncreaseinU.S.holdingsofassetsin-105foreign countries439and net transfers..Balanceonfinancialaccount7BALANCEONCAPITALACCOUNT-6Statistical discrepancyTable 18.1Thebalance ofpayments,0Balanceofpayments2012(billionsofdollars)5@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 5 U.S. Balance of Payments, 2012 A good way to understand economic interactions with other countries is by examining the balance of payments (BoP): the record of a country’s trade with other countries in goods, services, and assets. It is composed of the current account: the record of the country’s net exports, net income on investments, and net transfers. The balance of payments, 2012 (billions of dollars) Table 18.1 FINANCIAL ACCOUNT Increase in foreign holdings of assets in the United States 544 Increase in U.S. holdings of assets in foreign countries −105 Balance on financial account 439 BALANCE ON CAPITAL ACCOUNT 7 Statistical discrepancy -6 Balance of payments 0 CURRENT ACCOUNT Exports of goods $1,561 Imports of goods −2,303 Balance of trade −742 Exports of services 649 Imports of services −443 Balance of services 207 Income received on investments 776 Income payments on investments −552 Net income on investments 224 Net transfers −130 Balance on current account −440
U.S.BalanceofPayments,2012-continuedCURRENTACCOUNT...thefinancial account.$1,561Exports ofgoodswhich records-2,303Importsofgoods-742Balanceof tradepurchases of assets a countryExports of services649has made abroad,443Importsofservices207Balanceofservicesandforeign purchases of776Incomereceivedoninvestmentsassets in the country..-552Incomepaymentsoninvestments224Netincomeoninvestmentsand the capital account.-130Net transferswhich records relatively minor-440Balance on current accounttransactions such as migrantsFINANCIALACCOUNTtransfers and sales,andIncrease inforeignholdingsofassetsin544the UnitedStatespurchases of non-produced,IncreaseinU.S.holdingsofassetsinnonfinancialassets-105foreigncountries439Balanceonfinancialaccount7BALANCEONCAPITALACCOUNT-6Statistical discrepancyTable 18.1The balance of payments0Balanceofpayments2012(billionsofdollars)6@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 6 U.S. Balance of Payments, 2012—continued . the financial account, which records purchases of assets a country has made abroad, and foreign purchases of assets in the country. . and the capital account, which records relatively minor transactions such as migrants’ transfers and sales, and purchases of non-produced, nonfinancial assets. The balance of payments, 2012 (billions of dollars) Table 18.1 CURRENT ACCOUNT Exports of goods $1,561 Imports of goods −2,303 Balance of trade −742 Exports of services 649 Imports of services −443 Balance of services 207 Income received on investments 776 Income payments on investments −552 Net income on investments 224 Net transfers −130 Balance on current account −440 FINANCIAL ACCOUNT Increase in foreign holdings of assets in the United States 544 Increase in U.S. holdings of assets in foreign countries −105 Balance on financial account 439 BALANCE ON CAPITAL ACCOUNT 7 Statistical discrepancy -6 Balance of payments 0
U.S.BalanceofPayments,2012-continuedCURRENTACCOUNTThe balance of payments is theExports of goods$1,561sum ofthese three accounts.Imports ofgoods-2,303-742Balanceof tradeIt mustequal zero.In2010649Exportsofservicesthe U.S. spent $440 billion443Importsofservicesmore on goods, services,207Balanceofservicesandothercurrentaccount776Incomereceivedoninvestments-552Incomepaymentsoninvestmentsitems than itreceived.224NetincomeoninvestmentsThis money must have beenNettransfers-130used either to buy U.S.-440Balanceoncurrentaccountassets or to keep as U.SFINANCIALACCOUNTcurrencyholdingsoverseas.Increaseinforeignholdingsofassetsin544theUnitedStatesStatistical discrepancyistheIncrease in U.S.holdings of assets in-105foreigncountriesdifference.439Balanceonfinancialaccount7BALANCEONCAPITALACCOUNT-6Statistical discrepancyTable 18.1The balance of payments0Balanceofpayments2012(billionsofdollars)@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 7 U.S. Balance of Payments, 2012—continued The balance of payments is the sum of these three accounts. • It must equal zero. In 2010, the U.S. spent $440 billion more on goods, services, and other current account items than it received. • This money must have been used either to buy U.S. assets or to keep as U.S. currency holdings overseas. Statistical discrepancy is the difference. The balance of payments, 2012 (billions of dollars) Table 18.1 CURRENT ACCOUNT Exports of goods $1,561 Imports of goods −2,303 Balance of trade −742 Exports of services 649 Imports of services −443 Balance of services 207 Income received on investments 776 Income payments on investments −552 Net income on investments 224 Net transfers −130 Balance on current account −440 FINANCIAL ACCOUNT Increase in foreign holdings of assets in the United States 544 Increase in U.S. holdings of assets in foreign countries −105 Balance on financial account 439 BALANCE ON CAPITAL ACCOUNT 7 Statistical discrepancy -6 Balance of payments 0
TheCurrentAccountand the Balanceof TradeThe current account records a country's net exports, net income oninvestments. and net transfers,An important part of this is the balance of trade, the differencebetween the value of the goods a country exports and the value of thegoods a country imports.CanadaIf this is positive, it is referredChinaEuropeB00S$335B$427to as a trade surplus; a$112B$461B0negative balance of trade isatrade deficit.$149BMiddle$69BJapanEastUnited$72B$118BIn 2012. theU.S. had a tradeStatesdeficit of $742 billion: it had a$294B$33Btrade deficit with every world$246B$67B80Asia$184Africaregion except Latin America0$173(exceptChina10BandJapan)excludingMexico.8Figure 18.1aTradeflows fortheUnitedLatinAmericaMexico(exceptMexico)StatesandJapan,201282015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 8 The Current Account and the Balance of Trade If this is positive, it is referred to as a trade surplus; a negative balance of trade is a trade deficit. In 2012, the U.S. had a trade deficit of $742 billion; it had a trade deficit with every world region except Latin America excluding Mexico. The current account records a country’s net exports, net income on investments, and net transfers. An important part of this is the balance of trade, the difference between the value of the goods a country exports and the value of the goods a country imports. Trade flows for the United States and Japan, 2012 Figure 18.1a
The CurrentAccountand the Balanceof TradeJapan also ran a trade deficit of $87 billionin 2012On the other hand, China (not shown) had a trade surplus of $231billion in 2012United StatesYou might notice that theB1925tradefiguresbetweentheChinaEurope$103B$188BU.S. and Japan on this$144B$116Bslide are not the same asontheprevious slide(theywere $149and $72billionJapan$28B$204Brespectively).AsiaMiddle$292B$170B(exceptEastThis highlights the factChina)$13that trade figures are$28B$28VISnot measured exactly8LatinAfricaAmericaFigure 18.1bTrade flows forthe UnitedStatesandJapan,20129@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 9 The Current Account and the Balance of Trade You might notice that the trade figures between the U.S. and Japan on this slide are not the same as on the previous slide (they were $149 and $72 billion respectively). • This highlights the fact that trade figures are not measured exactly. Japan also ran a trade deficit of $87 billion in 2012. On the other hand, China (not shown) had a trade surplus of $231 billion in 2012. Trade flows for the United States and Japan, 2012 Figure 18.1b
TheRestoftheCurrentAccountThe balance of services is the difference between thevalues of theexports and imports of services.Net exports is the sum of the balance of trade and the balance ofservices.The current account balance is the sum of net exports, net income oninvestments,and net transfers.. For simplicity, we will frequently ignore the latter twotheir sum isclose to zero for the U.S.and think of net exports as being equalto the current account balance.10@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 10 The Rest of the Current Account The balance of services is the difference between the values of the exports and imports of services. Net exports is the sum of the balance of trade and the balance of services. The current account balance is the sum of net exports, net income on investments, and net transfers. • For simplicity, we will frequently ignore the latter two—their sum is close to zero for the U.S.—and think of net exports as being equal to the current account balance