All right, so in this introductory class they don't go into so much detail about this, but it's nice to know at least on a high level, how the net exports deal with the savings-investment identity that we've discussed so far. Okay. So savings equals investment, right? And we saw how that works in a closed economy. Now let's see how the addition of net exports will affect this. So when we think about exports and imports, if we're importing a lot of stuff and not exporting it, well, we're basically borrowing money, right? Because we're importing things but not covering it with our exports. So that money borrowed has to be repaid with interest, right? And if we're talking about borrowing it from other countries through this deficit relationship where we're running a trade deficit, we're basically importing more than we're exporting. What we're basically borrowing from these nations. So we have what's called a net capital inflow because our investment spending is being financed by funds borrowed from foreigners. Okay, because remember our relationship of Y−C−G−net exports in this case is going to equal investment but let's go ahead and see how this flows. So now, what we're going to have is investment spending being financed by foreign money. However, it comes at a national cost, right? Because now our nation as a whole has to pay this interest to a foreigner to finance this extra spending, right? So when we think about that extra variable of net exports, right? We had y=c+i+g+nx, right? Well, if we solved for I in that case, the investment, well we would be left with y−c−g−nx=I, Right? Because we have this extra variable now of net exports. So how does this work into the equation? Is that now we have what's called this net capital inflow. If we've got basically imports coming in that are greater than our exports, so we got this inflow of things coming into our country. Well that is going to be increasing our capital inflow where our imports are greater than our exports, so imports minus exports. So if we have the situation where we're importing more than we're exporting. Well that's going to finance our investment as well, right? Because of this net exports term. Basically being the opposite of that being exports minus imports. However, the idea here without getting into too much detail all you really need to know is that in an open economy, we're going to have our national savings that we've discussed above plus this net capital inflow that's what's going to equal our investment in this case. So where we had investment equals savings in an open economy well it's plus the net capital inflow and that's because if we are importing more than we're exporting, well that's going to help finance our investment as well, okay? So that's the whole idea when we open up the economy, if this idea of imports and exports are going to finance. Now what if we were exporting more than we're importing? Well that would decrease our investment right? Because we're exporting some of our savings to other countries basically in that case. Alright, so in that case the investment would be lower with a negative NCI. We'd have a net capital outflow in that case. All right? So don't worry too much about this. The main stuff that we want to remember from this video is how we had that savings to investment identity and how we calculated our public and private savings. Cool? With that said, let's go ahead and move on to the next video.
Table of contents
- 1. Introduction to Macroeconomics1h 57m
- 2. Introductory Economic Models59m
- 3. Supply and Demand3h 43m
- Introduction to Supply and Demand10m
- The Basics of Demand7m
- Individual Demand and Market Demand6m
- Shifting Demand44m
- The Basics of Supply3m
- Individual Supply and Market Supply6m
- Shifting Supply28m
- Big Daddy Shift Summary8m
- Supply and Demand Together: Equilibrium, Shortage, and Surplus10m
- Supply and Demand Together: One-sided Shifts22m
- Supply and Demand Together: Both Shift34m
- Supply and Demand: Quantitative Analysis40m
- 4. Elasticity2h 26m
- Percentage Change and Price Elasticity of Demand19m
- Elasticity and the Midpoint Method20m
- Price Elasticity of Demand on a Graph11m
- Determinants of Price Elasticity of Demand6m
- Total Revenue Test13m
- Total Revenue Along a Linear Demand Curve14m
- Income Elasticity of Demand23m
- Cross-Price Elasticity of Demand11m
- Price Elasticity of Supply12m
- Price Elasticity of Supply on a Graph3m
- Elasticity Summary9m
- 5. Consumer and Producer Surplus; Price Ceilings and Price Floors3h 40m
- Consumer Surplus and WIllingness to Pay33m
- Producer Surplus and Willingness to Sell26m
- Economic Surplus and Efficiency18m
- Quantitative Analysis of Consumer and Producer Surplus at Equilibrium28m
- Price Ceilings, Price Floors, and Black Markets38m
- Quantitative Analysis of Price Ceilings and Floors: Finding Points20m
- Quantitative Analysis of Price Ceilings and Floors: Finding Areas54m
- 6. Introduction to Taxes1h 25m
- 7. Externalities1h 3m
- 8. The Types of Goods1h 13m
- 9. International Trade1h 16m
- 10. Introducing Economic Concepts49m
- Introducing Concepts - Business Cycle7m
- Introducing Concepts - Nominal GDP and Real GDP12m
- Introducing Concepts - Unemployment and Inflation3m
- Introducing Concepts - Economic Growth6m
- Introducing Concepts - Savings and Investment5m
- Introducing Concepts - Trade Deficit and Surplus6m
- Introducing Concepts - Monetary Policy and Fiscal Policy7m
- 11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)1h 37m
- Calculating GDP11m
- Detailed Explanation of GDP Components9m
- Value Added Method for Measuring GDP1m
- Nominal GDP and Real GDP22m
- Shortcomings of GDP8m
- Calculating GDP Using the Income Approach10m
- Other Measures of Total Production and Total Income5m
- Consumer Price Index (CPI)13m
- Using CPI to Adjust for Inflation7m
- Problems with the Consumer Price Index (CPI)6m
- 12. Unemployment and Inflation1h 22m
- Labor Force and Unemployment9m
- Types of Unemployment12m
- Labor Unions and Collective Bargaining6m
- Unemployment: Minimum Wage Laws and Efficiency Wages7m
- Unemployment Trends7m
- Nominal Interest, Real Interest, and the Fisher Equation10m
- Nominal Income and Real Income12m
- Who is Affected by Inflation?5m
- Demand-Pull and Cost-Push Inflation6m
- Costs of Inflation: Shoe-leather Costs and Menu Costs4m
- 13. Productivity and Economic Growth1h 17m
- 14. The Financial System1h 37m
- 15. Income and Consumption52m
- 16. Deriving the Aggregate Expenditures Model1h 22m
- 17. Aggregate Demand and Aggregate Supply Analysis1h 18m
- 18. The Monetary System1h 1m
- The Functions of Money; The Kinds of Money8m
- Defining the Money Supply: M1 and M24m
- Required Reserves and the Deposit Multiplier8m
- Introduction to the Federal Reserve8m
- The Federal Reserve and the Money Supply11m
- History of the US Banking System9m
- The Financial Crisis of 2007-2009 (The Great Recession)10m
- 19. Monetary Policy1h 32m
- 20. Fiscal Policy1h 0m
- 21. Revisiting Inflation, Unemployment, and Policy46m
- 22. Balance of Payments30m
- 23. Exchange Rates1h 16m
- Exchange Rates: Introduction14m
- Exchange Rates: Nominal and Real13m
- Exchange Rates: Equilibrium6m
- Exchange Rates: Shifts in Supply and Demand11m
- Exchange Rates and Net Exports6m
- Exchange Rates: Fixed, Flexible, and Managed Float5m
- Exchange Rates: Purchasing Power Parity7m
- The Gold Standard4m
- The Bretton Woods System6m
- 24. Macroeconomic Schools of Thought40m
- 25. Dynamic AD/AS Model35m
- 26. Special Topics11m
14. The Financial System
Savings Equal Investment
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