Monetary and Fiscal policy in the open economy - Lecture#21 Monetary and Fiscal Policy in the Open Economy Econ 1110 Spring 2008 Professor Ted

Monetary and Fiscal policy in the open economy - Lecture#21...

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Econ 1110, Spring 2008, Professor Te 1 Lecture #21 Monetary and Fiscal Policy in the Open Economy
Econ 1110, Spring 2008, Professor Te 2 Open-Economy IS-LM Model Extend IS-LM Model to Open Economy Open-Economy IS Curve Takes account of net exports LM curve is same in open economy FE line is same in open economy International Transmission of Business Cycles Monetary and Fiscal Policy in Open Economy
Econ 1110, Spring 2008, Professor Te 3 NX F r E S - I The Open-Economy IS Curve S - I = NX IS Curve Slopes Downward Increase in Y reduces r that clears goods market S - I , NX - I S I and S r NX e r 0
Econ 1110, Spring 2008, Professor Te 4 Anything that Shifts the IS Curve in a Closed Economy Shifts Open-Economy IS Curve in the Same Direction Anything that Increases NX , Given Y and r , Shifts IS Curve Upward Factors that Shift the Open-Economy IS Curve
Econ 1110, Spring 2008, Professor Te 5 0 Anything that Increases NX , Given Y and r , Shifts IS Curve Upward Increase in foreign output, Y For Increase in foreign real interest rate, r For Shift in world demand toward domestic goods S-I , NX E H r NX S-I Role of Net Exports as IS Shifter IS Y r E H
Econ 1110, Spring 2008, Professor Te 6 Macroeconomic Policy with Flexible Exchange Rates

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