The National Income Essay Example | Topics and Well Written Essays - 1250 words

The content Income - Essay ExampleThus, give the axe exports denote the difference what a country can produce and what it really consumes. If the output it produces is insufficient to satisfy consumption, investiture, and government expenditures, it will tend to source output from other countries.On the other hand, the net capital outflow is the difference between domestic savings and domestic investment musical composition the get by balance is shown as the total amount that the country receives for its net exports. Through the study income identity discussed above, it can be seen that net capital outflow is always equal to the countrys traffic balance. If the trade balance and the net capital outflow is positive, the country is running a trade surplus which substance that it is a lender in the international financial market and that its exports is greater than its imports. However, if it is negative, it is running a trade deficit which means that it is a borrower in the fi nancial market and imports is greater than exports.Following from this, the impact of both policy on the balance of trade can be identified and assessed by considering its effect in the countrys savings and investment. Logically, any policy which causes savings and investment to increase supports a trade surplus while oneness which causes decline in savings and investment will lead to a trade deficit.In order to ... There are two type of exchange rates nominal which is the relative wrong of currency of two countries while real is the relative determine of goods of two countries. These two are relate in the sense that the real exchange rate is equal to the nominal exchange rate cipher by the ratio of price levels in the two countries. Thus, if the real exchange rate is high, irrelevant goods are relatively cheap, and domestic goods are relatively expensive. On the other hand, if the real exchange rate is low, foreign goods are relatively expensive, and domestic goods are rela tively cheap. The real exchange rate is directly tie in to net exports in the sense that when real exchange rate is high and domestic goods are less(prenominal) expensive, it is expected that net exports will be greater as domestic goods will appeal more(prenominal) to other countries and exports are higher. Another determinant of real exchange rate is net capital outflow. It should be noted that the equilibrium real exchange rate is the rate at which the quantity of net exports demanded equals to the net capital outflow. On the other hand, since the nominal exchange rate is determined by the prices of commodities in one country compared to the other, the price level is its most significant determinant. Empirical evidence shows that the high level of swelling which makes domestic goods priced higher will tend to cause a depreciating currency.Chapter 12The Mundell-Fleming model has been recognise as a dominant policy paradigm for the study of open-economy monetary and fiscal poli cy. It is the same as the IS-LM Model in the sense that both emphasize the interaction between the goods and money market. Also, these models assume that price is fixed while showing what affects short-run