Chapter 14. The International Trade and Capital Flows
KEY CONCEPTS AND SUMMARY
<span class="MathJax" id="MathJax-Element-61-Frame" data-mathml="Supply of financial capital = Demand for financial capitalS + (M – X)=I + (G – T) Supply of financial capital = Demand for financial capitalS + (M – X)=I + (G – T) ” role=”presentation” style=”overflow: initial;font-style: normal;font-weight: normal;line-height: normal;font-size: 16px;text-indent: 0px;text-align: center;text-transform: none;letter-spacing: normal;float: none;direction: ltr;max-width: none;max-height: none;min-width: 0px;min-height: 0px;border: 0px;padding: 0px;margin: 0px”>Supply of financial capital = <span class="MathJax" id="MathJax-Element-61-Frame" data-mathml="Supply of financial capital = Demand for financial capitalS + (M – X)=I + (G – T) Supply of financial capital = Demand for financial capitalS + (M – X)=I + (G – T) ” role=”presentation” style=”overflow: initial;font-style: normal;font-weight: normal;line-height: normal;font-size: 16px;text-indent: 0px;text-align: center;text-transform: none;letter-spacing: normal;float: none;direction: ltr;max-width: none;max-height: none;min-width: 0px;min-height: 0px;border: 0px;padding: 0px;margin: 0px”>Demand for financial capital<span class="MathJax" id="MathJax-Element-61-Frame" data-mathml="Supply of financial capital = Demand for financial capitalS + (M – X)=I + (G – T) Supply of financial capital = Demand for financial capitalS + (M – X)=I + (G – T) ” role=”presentation” style=”overflow: initial;font-style: normal;font-weight: normal;line-height: normal;font-size: 16px;text-indent: 0px;text-align: center;text-transform: none;letter-spacing: normal;float: none;direction: ltr;max-width: none;max-height: none;min-width: 0px;min-height: 0px;border: 0px;padding: 0px;margin: 0px”>
<span class="MathJax" id="MathJax-Element-61-Frame" data-mathml="Supply of financial capital = Demand for financial capitalS + (M – X)=I + (G – T) Supply of financial capital = Demand for financial capitalS + (M – X)=I + (G – T) ” role=”presentation” style=”overflow: initial;font-style: normal;font-weight: normal;line-height: normal;font-size: 16px;text-indent: 0px;text-align: center;text-transform: none;letter-spacing: normal;float: none;direction: ltr;max-width: none;max-height: none;min-width: 0px;min-height: 0px;border: 0px;padding: 0px;margin: 0px”> S + (M – X) = I + (G – T)
A recession tends to increase the trade balance (meaning a higher trade surplus or lower trade deficit), while economic boom will tend to decrease the trade balance (meaning a lower trade surplus or a larger trade deficit).
Trade deficits and trade surpluses are not necessarily good or bad—it depends on the circumstances. Even if a country is borrowing, if it invests that money in productivity-boosting investments it can lead to an improvement in long-term economic growth.