18.1 The International Flow of Goods and Capital

18.1 a. The Flow of Goods: Exports, Imports, and Net Exports

An export is a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade [1].

An import is a good or service brought into one country from another [2].

Net exports refer to the value of a country’s total exports minus the value of its total imports [3].

A trade surplus is an economic measure of a positive balance of trade, where a country’s exports exceed its imports [4].

Trade deficit is an economic measure of international trade in which a country’s imports exceeds its exports [5].

Balanced Trade is a condition in which an economy runs neither a trade surplus nor a trade deficit [6].

Example: China is exporting more goods than it imports from other countries, therefore, China is in trade surplus.

^{International Trade [7]}

18.1 b. The Flow of Financial Resources: Net Capital Outflow

The net amount of assets invested in a foreign country measured during a set period of time, usually measured yearly. If the value is positive, this indicates that a country invests more in other countries than other countries invest in it; the negative value would be the opposite [8].

Example: The current Net Capital Outflow of the country of the United States of America were 0.40 billion dollars in the year 2013 means the US invested $0.40 billion dollars more in foreign countries than other countries invested in it [8].

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^{Net Capital Outflow [9]}

18.1 c. The Equality of Net Exports and Net Capital Outflow

Imbalances in the net capital outflow (NCO) are associated with imbalances in the net exports (NX). Each exchange that affects the net capital outflow, also affects net exports in the same amount [10].

Example: If an economy is running a trade deficit, it must be financing the net purchase of goods and services by selling assets abroad [10].

^{NCO equals NX [11]}

18.1 d. Saving, Investment, and Their Relationship to the International Flows

We know that GDP is Y = C + I + G + NX where Y = GDP, C = Consumption, I = Investment, G = Government Spending.

National Saving (S) is Y – C- G

So, S = I + NX = I + NCO [10]

Example: When exports equal imports, NX = 0, Y = C + I +G, S = I and NCO = 0 [10]

^{NCO equals NX [11]}