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Lecture 2 - EC 60 Lecture 15 Linking the Foreign Exchange...

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EC 60: Lecture 15 Linking the Foreign Exchange  Markets to the Goods Markets
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Announcement The  2009 Wellington Burnham Lecture Series   presents  David Laibson of Harvard University  and  Daeyeol Lee of Yale University  on  Friday,  April 3, 2009, 4:30 – 6:00 p.m. at Cabot,  Rm. 206 . Dr. Laibson and Dr. Lee will  present  Neuroeconomics and Homo  Economicus: Where Are We Now and  Where Are We Going?  A reception will 
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What we have done so far. Open interest parity condition Fisher equation Money market equilibrium Real Exchange Rate PPP Current Account
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Now let’s make a model of the  goods markets. D = Aggregate Demand C(Y-t) = Consumption is a function of after tax income I = Investment G = Government spending                   = Current Account is a function of the real                           exchange rate.
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Here’s a picture you saw in EC  5 The intercept is I + G + X-M The slope is the marginal propensity to consume out of disposable  income. Income Aggregate Demand
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Aggregate Supply The national income accounting identity tells us that every dollar of  stuff produced generates a dollar of income Y = C + I + G + X - M Income Aggregate Supply 45 degree line
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