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# International Trade and Equilibrium Output - PowerPoint PPT Presentation

International Trade and Equilibrium Output. Chapter 10 continued. GDPs. Equilibrium GDP for a closed economy= GDP = C + Ig Equilibrium GDP for an open economy without gov’t involvement = GDP = C + Ig + Xn Equilibrium GDP for an open economy with gov’t involvement = GDP = C + Ig + G + Xn.

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### International Trade and Equilibrium Output

Chapter 10 continued

• Equilibrium GDP for a closed economy=

• GDP = C + Ig

• Equilibrium GDP for an open economy without gov’t involvement =

• GDP = C + Ig + Xn

• Equilibrium GDP for an open economy with gov’t involvement =

• GDP = C + Ig + G + Xn

• Export – imports

• Exports expand aggregate expenditure

• Exports (X) create domestic production, income & employment due to foreign spending on US produced g & s

• Imports contract aggregate expenditure

• Imports (M) reduce the sum of C & Ig expenditures by the amount expended on imported goods (so this amount must be subtracted so that spending on US produced goods is not overstated)

• POSITIVE NET EXPORTS

• Multiplier effect

• A positive Xn leads to a positive change in equilibrium GDP

• See table 9.4 on page 173

• Suppose Xn is +5 billion for each level

• GDP equilibrium = C + Ig + Xn

• Where is the new equilibrium GDP?

• 490

• A 5b increase in Xn = 20b in GDP—what is the multiplier?

• 4

• Other things equal, positive net exports increase aggregate expenditures and GDP beyond what they would be in a closed economy

• NEGATIVE NET EXPORTS

• Multiplier effect

• A negative Xn leads to a negative change in equilibrium GDP

• See table 9.4 on page 173

• Suppose Xn is -5 billion for each level

• GDP equilibrium = C + Ig + Xn

• Where is the new equilibrium GDP?

• 450

• A 5b decrease in Xn = 20b decrease in GDP—what is the multiplier?

• 4

• All things equal, negative net exports reduce aggregate expenditures and GDP below what they would be in a closed economy