A. FOREIGN TRADE AND ECONOMIC ACTIVITY
Open-economy macroeconomics is the study J of how economies behave when the trade and financial linkages among nations are considered. Th(‘ previous chapter described the basic concepts of the balance of payments. We can restate those here in terms of the national income and product account IS. I Foreign trade involves imports and exports.
Although the United Slates produces most of what it it nonetheless has a large quantity of imports, which an’ goods and services produced’ abroad and con- . Exports are goods and services and purchased Net export are as exports of goods and services mi- nus imports of’ good and services. For I!19~1.net exports for the United States were minus 4 billion. rived from S998 billion of export minus billion of imports. positive net exports, it is accumulating foreign assets. The counterpart of net expires is therefore net foreign investment, which denotes net saving or investment abroad and is approximately equal to the value of net exports.
In 1999, the United States had negative net exports, which signifies that the U.S. was borrowing . from abroad and therefore had negative net foreign investment. In other words, foreigners malting a significant contribution to U.S. it that rich America borrowed so much from abroad? This puzzling phenomenon is explained b .a relative I’low U.S. saving rate and a high domestic investment rate driven by the long economic boom and the technological dynamism of the United States.
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