Factors that affect the country’s economy include: the inflation rate. If a given state has a relatively high rate of inflation, local households and corporations are probably in buying a substantial number of imports. The state’s firms are also more likely in experiencing some difficulty in exporting. On the other hand, a fall in inflation will lead to increasing in the nation’s international competitiveness and is probably to increase the exports, reducing the imports. The country’s exchange rate will also be another effect to the country’s economy. A fall in a nation’s exchange rate is likely to lower export expenses and raise import costs. It will be more probable in increasing the value of the exports and reduce the amount that has to be spent on imports. Gross Domestic Product is another factor that is likely to affect the country’s economy. Companies are more likely to buy additional raw materials and capital goods, and some of are liable to be from abroad. Homes will tend to buy more products, and some of these are liable to be imported. An increase in local demand can tend to encourage some local companies to change from the foreign to the domestic market. If this has to occur, exports will tend to fall (Mankiw, 2014).
The transaction between Bill and Japan Software Company is an outward operation where the resources of the United States are taken to another country through the importation of the software. The process is vital as it helps the American economy to be stable. On the other hand, the Bill will be getting a product that is likely to change the economy of the state by using it in a more productive way of contributing towards the economy.
In case there is lack of a domestic tax disparities or shipping expenses, the good will cost an equal amount in different states. The main reason for this is that people will tend to exploit price discrepancies. Buying power equality concept primarily employs the law of one expense in a collective stage. In the entire goods and services, this concept will have a consequence to the exchange rate. In the normal state, buying power parity can be tremendously uncommon. Certainly, there is likely to be a regularly massive price changes in the diverse areas of the state. The theory means that such a case may have been caused by the changes in sales taxation between the different states, through the expense of conveying goods between these states, and by trading obstacles for example the import limitations (Gregory, 2006).
Net Capital Outflow can be stated as the net flow of resources being capitalized abroad by a state during a given period which is usually a year. A positive Net Capital Outflow implies that the nation invests more than the international state invests in it and vice versa. Net Capital Outflow is one of the two primary ways of exemplifying the nature of a nation’s economic and financial contact with the rest of the global the other case is the balance of trade.
The outcome of private saving increasing to demand or supply of loan may increase the cost of borrowing. Interest expenses on loans and credit cards are more expensive. Thus, this dismays people in saving and borrowing. Similarly, People already having loans tends to have less disposable income as they use more on interest expenses(Mankiw, 2014).
If the investment prospects in African nations have improved, it will be the best moment for the U.S. investors to direct their investing capacities to such nations to increase inflow that will then raise its economy. The outflow of the U.S will thus reduce as the spent products will be coming back to the country.
In the case that the U.S citizens decide to save more loanable amount will be in plenty, and the equilibrium will be one sided i.e. to the side of keeping alone. The exchange rate will reduce much more as there will be a less international transaction between the other nations as the citizens will be saving more hence there will be a derailed investment rate which will not only affect the country but also its transaction with the outside world.
In case the state of America decides on buy America campaign then it’s likely for it to lack international trade as other states will fear to trade with a country. This is because, the outside country will fear to buy American products as there will be no balanced trade between the country and the outside world. This is likely to affect the country’s economy.(Office, U. S., 1992).
Gregory Mankiw, M. P. (2006). Economics. Cengage Learning EMEA.
Office, U. S. (1992). The Economic effects of the savings & loan crisis. Congress of the U.S., Congressional Budget Office.
Mankiw, N. (2014). Principles of Economics. Cengage Learning.