Beruflich Dokumente
Kultur Dokumente
macroeconomics
fifth edition
N. Gregory Mankiw
PowerPoint® Slides
by Ron Cronovich
30%
25%
20%
15%
10%
5%
0%
Canada France Germany Italy Japan Mexico U.K. USA
Imports Exports
source: OECD
= (C − C f ) + (I − I f ) + (G − G f ) + EX
= C + I + G + EX − (C f + I f
+Gf )
= C + I + G + EX − I M
= C + I + G + NX
Y = C + I + G + NX
or, NX = Y – (C + I + G )
domestic
spending
net
exports
output
NX = EX – IM = Y – (C + I + G )
trade surplus:
output > spending and exports > imports
Size of the trade surplus = NX
trade deficit:
spending > output and imports > exports
Size of the trade deficit = –NX
1%
0%
-1%
-2%
-3%
-4%
-5%
1975 1980 1985 1990 1995 2000
NX = Y – (C + I + G )
implies
NX = (Y – C – G ) – I
= S – I
trade balance = net capital outflows
Thus,
Thus,
aa country
country with
with aa trade
trade deficit
deficit ((NXNX <
<
00))
is
is aa net
net borrower
borrower ((SS << II ).).
CHAPTER 5 The Open Economy slide 11
The world’s largest debtor nation
U.S. has had large trade deficits, been a
net borrower each year since the early 1980s.
As of 12/31/2003:
U.S. residents owned $7.9 trillion worth of
foreign assets
Foreigners owned $10.5 trillion worth of U.S.
assets
U.S. net indebtedness to rest of the world:
$2.6 trillion---higher than any other country,
hence U.S. is “world’s largest debtor nation”
production function: Y = Y = F (K , L)
consumption function: C = C (Y − T )
investment function: I = I (r )
r S =Y − C (Y − T ) − G
As in Chapter 3,
national saving
does not depend
on the interest
rate
S S, I
aa &
& bb imply
imply rr == r*
r*
cc implies
implies r* r* is
is exogenous
exogenous
3. An increase in investment
demand
I1 S, I
Percent of GDP
Percent of GDP
3 (right scale) 6
2 4
1 2
0 0
-1 -2
-2 -4
-3 -6
-4 -8
world
interest rate.
Results:
∆I < 0 I (r )
∆NX = −∆I > 0
S, I
*
I (r )
2
I (r1* )
r*
EXERCISE:
Use the model to NX
determine the 1
impact of an
increase in I (r )1
investment
demand on NX, S, I1 S, I
I, and net capital
outflow.
CHAPTER 5 The Open Economy slide 23
3. An increase in investment demand
r
S
ANSWERS: NX
∆ I > 0, r* 2
∆ S = 0,
net capital NX
outflows 1 I (r )2
and net
exports I (r )1
fall by the
amount ∆ I I1 I2 S, I
1973:1 = 100
2% 140
1% 120
0% 100
-1% 80
-2% 60
-3% 40
-4% 20
-5% 0
1975 1980 1985 1990 1995 2000
so U.S.
When ε is net
relatively exports
low, will
ε1 be high
U.S. goods
are relatively NX(ε
inexpensive )
0 N
NX(ε1)
X
CHAPTER 5 The Open Economy slide 34
The NX curve for the U.S.
ε At high enough
values of ε,
ε2 U.S. goods
become so
wethat
expensive export
less than
we import
NX(ε
0 )
NX(ε2) N
X
CHAPTER 5 The Open Economy slide 35
How ε is determined
The accounting identity says NX = S − I
We saw earlier how S − I is determined:
• S depends on domestic factors (output,
fiscal policy variables, etc)
• I is determined by the world interest
rate r *
So, ε must adjust to ensure
NXε( ) =S −I r( * )
Neither S nor I
depend on ε, ε S1 − I (r *)
so the net capital
outflow curve is
vertical.
ε1
ε adjusts to
equate NX NX(ε
with net )
capital NX
NX 1
outflow, S − I.
CHAPTER 5 The Open Economy slide 37
Interpretation: supply and demand in
the foreign exchange market
demand:
ε S1 − I (r *)
Foreigners need
dollars to buy U.S.
net exports.
supply: ε1
The net capital
outflow (S − I ) NX(ε
is the supply )
of dollars to be NX
NX 1
invested
abroad.
CHAPTER 5 The Open Economy slide 38
Four experiments
1. Fiscal policy at home
3. An increase in investment
demand
ε1
An increase in r* S1 − I (r1 *)
reduces investment, ε
increasing net capital S1 − I (r2*)
outflows and the
supply of dollars in ε1
the foreign exchange
market…
ε2
NX(ε
…causing the
)
real exchange NX
rate to fall NX 1 NX 2
and NX to
rise.
CHAPTER 5 The Open Economy slide 41
3. An increase in investment
demand
An increase in S1 − I 2
investment
ε S1 −I 1
reduces net
capital outflows
and the supply ε2
of dollars in the
foreign exchange
market…
ε1
NX(ε
…causing the )
NX
real exchange NX 2 NX 1
rate to rise
and NX to
CHAPTER 5 The Open Economy slide 42
fall.
4. Trade policy to restrict imports
ε1
NX (ε )2
Trade policy NX (ε )1
doesn’t affect S or
I , so capital flows NX
NX1
and the supply of
dollars remains
fixed.CHAPTER 5 The Open Economy slide 43
4. Trade policy to restrict imports
Results:
ε S −I
∆ ε >0
(demand
increase) ε2
∆ NX = 0
(supply ε1
fixed) NX (ε )2
∆ IM < 0
(policy) NX (ε )1
∆ EX < 0 NX
(rise in ε ) NX1
P*
eε = ×
P
NX
CHAPTER 5 The Open Economy slide 51
Does PPP hold in the real world?
No, for two reasons:
1.International arbitrage not possible.
nontraded goods
transportation costs
2.Goods of different countries not perfect
substitutes.
Nonetheless, PPP is a useful theory:
• It’s simple & intuitive
• In the real world, nominal exchange
rates have a tendency toward their PPP
values over the long run.
CHAPTER 5 The Open Economy slide 52
CASE STUDY
The Reagan Deficits revisited
1970 1980 actual closed small
s s chang economy open
e economy
G–T 2.2 3.9 ↑ ↑ ↑
S 19.6 17.4 ↓ ↓ ↓
r 1.1 6.3 ↑ ↑ no
change
I 19.9 19.4 ↓ ↓ no
change
NX -0.3 -2.0 ↓ no ↓
change
ε 115.1 129.4 ↑ no ↑
change
Data: decade averages; all except r and ε are expressed
as a percent of GDP; ε is a trade-weighted index.
CHAPTER 5 The Open Economy slide 53
The U.S. as a large open economy
So far, we’ve learned long-run models for
two extreme cases:
closed economy (chapter 3)
small open economy (chapter 5)
A large open economy --- like the U.S. --- is
in between these two extremes.
The analysis of policies or other exogenous
changes in a large open economy is a
mixture of the results for the closed &
small open economy cases.
For example…
CHAPTER 5 The Open Economy slide 54
A fiscal expansion in three models
A fiscal expansion causes national saving to fall.
The effects of this depend on the degree of
openness:
closed large open small open
econom economy economy
y
rises, but not as no
r rises much change
as in closed economy
falls, but not as much no
I falls
change
as in closed economy
no falls, but not as much
NX as in small open falls
change
economy
CHAPTER 5 The Open Economy slide 55
Chapter summary
1. Net exports--the difference between
exports and imports
a country’s output (Y )
and its spending (C + I + G)
2. Net capital outflow equals
purchases of foreign assets
minus foreign purchases of the country’s assets
the difference between saving and investment
3. National income accounts identities:
Y = C + I + G + NX
trade balance NX = S − I net capital outflow