Ch 18 [macro]: Open Economy Basics

[@Me-yj9lh]

THIS CHANNEL SAVED MY LIFE

[@alasdairhalliday6792]

Thank you!! Fantastic teacher!!

[@justinjarvis5681]

You're very welcome!

[@gimmanthe5523]

one chap in 24minutes thanks!

[@giuliamarcelloni2341]

Thank you so much! Great explanation!

[@aakashbagaria1429]

ty sir nc explanation nd content

[@justinjarvis5681]

Glad I could help!

[@bieberfan6821]

isnt E at 14:45 160????

[@justinjarvis5681]

So, 140 is just what I made up for the example. Currently (12/24/2020) it's actually at 104 yen/dollar. Is there somewhere else in the video that I called it 160? Let me know. It's possible I have a mistake.

[@brittanydaley4520]

I thought you said that if NCO < 0 , this is a capital inflow where you are selling more than what people are buying from you. So how come b is a correct statement at the end of the video? Because a trade deficit is when imports > exports, meaning that we are buying more than we are selling? Therefore NCO > 0 but you are saying that it is NCO < 0 which makes no sense to me.

[@justinjarvis5681]

Great question! This is a difficult topic, so don't despair. NCO is the flow of DOLLARS/ASSETS into and out of a country, whereas NX is the flow of GOODS into and out of the country. So, a country with a trade deficit has imports > exports (as you correctly stated), and thus NX < 0. So, two ways to think about it. 1) The simple way is that NCO always equals NX, so if NX < 0, then NCO is also < 0. 2) The deeper explanation is that when we have NX < 0, we are in effect going into debt to another country (imagine you are trading with your friend, you give him less valuable items than he gives you, your "exports" are less than your "imports". He's going to get mad at you and you'll owe him!). So, how do we pay off that "debt" to another country? Well, we sell off pieces of our country (figuratively). Maybe the other country's citizens buy US government bonds. A bond is the same as saying that they are loaning us money and we have to pay them back. So, when they buy US govt bonds, their financial assets are flowing into the country (buying the bonds) and NCO < 0. Eventually, we will have to pay them back. Does that make sense?

[@brittanydaley4520]

@@justinjarvis5681 Thank you so much! :) That helped a lot. :)