Imports and exports of selected countries, 2013
          P
          D
          G
              60
          f
          o
           
          t
          n
          e                                                                                                                       Exports       Imports
          c   50
          r
          e
          P
              40
              30
              20
              10
                0
                      Australia              China            Germany Greece                           S. Korea              Mexico United States
  In an open economy,
  • spending need not equal output
  • saving need not equal investment
     Preliminaries                            superscripts:
                                               superscripts:
                  d     f                     d = spending on 
          C C C                              d = spending on 
                                                  domestic goods
                                                  domestic goods
           I I d I f                        f = spending on 
                                               f = spending on 
                                                  foreign goods
          G Gd Gf                               foreign goods
     EX = exports = 
           foreign spending on domestic goods
                     f   f    f
     IM = imports = C  + I  + G  
           = spending on foreign goods
     NX = net exports (a.k.a. the “trade balance”) 
             = EX – IM
  The national income identity 
  in an open economy
          Y = C + I + G + NX
       or,    NX  = Y  –  (C  + I  + G )
                       domestic 
     net exports      spending
              output
    Affects on GDP Components
    • What happens to C, I, G, and NX when:
     • I buy $100 worth of French wine in America?
     • The American government buys $1 million worth of missiles from Israel?
     • I buy a $40,000 Toyota Corolla made in Cleveland.
     • I buy a Ford Mustang for $40,000 with $5000 tires made in Brazil.