Chap027

Chap027 - Chapter 27 Prices and Output in the Open Economy:...

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Chapter 27 – Prices and Output in the Open Economy: Aggregate Supply and Demand CHAPTER 27 PRICES AND OUTPUT IN THE OPEN ECONOMY: Aggregate Supply and Demand Learning Objectives: To understand the fundamental links between international transactions and aggregate demand and aggregate supply. To grasp how economic shocks and policies affect prices and output. To comprehend the differences between macroeconomic adjustment under fixed exchange rates and under flexible exchange rates. To appreciate the difference between short-run and long-run effects of macro policies on output and prices. I. Outline Introduction - Crisis in Argentina Aggregate Demand and Supply in the Closed Economy - Aggregate Demand in the Closed Economy - Aggregate Supply in the Closed Economy - Equilibrium in the Closed Economy Aggregate Demand and Supply in the Open Economy - Aggregate Demand in the Open Economy under Fixed Rates - Aggregate Demand in the Open Economy under Flexible Rates The Nature of Economic Adjustment and Macroeconomic Policy in the Open-Economy Aggregate Supply and Demand Framework - The Effect of Exogenous Shocks on the Aggregate Demand Curve under Fixed and Flexible Rates - The Effect of Monetary and Fiscal Policy on the Aggregate Demand Curve under Fixed and Flexible Rates - Summary Monetary and Fiscal Policy in the Open Economy with Flexible Prices - Monetary Policy - Currency Adjustments under Fixed Rates - Fiscal Policy - Economic Policy and Supply Considerations External Shocks and the Open Economy Summary 27-1
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Chapter 27 – Prices and Output in the Open Economy: Aggregate Supply and Demand II Special Chapter Features In the Real World: U.S. Actual and Natural Income and Unemployment In the Real World: Economic Progress in Sub-Saharan Africa In the Real World: Inflation and Unemployment in the United States, 1970-2005 III. Purpose of Chapter The purpose of the chapter is to examine the manner in which trade and international payments influence the macroeconomy when prices are flexible. Special attention is given to the implications of price flexibility for policy actions and for macroeconomic response to external shocks. IV. Teaching Tips A. Changes in international capital flows and trade flows exert pressure not only on income and employment but also upon prices. The less adaptable the economy is to changing economic conditions, the greater the price responses and adjustment costs for the economy. The severity of these problems is clearly evident in the adjustment difficulties experienced by Argentina described in the opening vignette. Discussing this experience with the class can help students appreciate these problems and see the need to incorporate price movements into policy analysis. B.
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Chap027 - Chapter 27 Prices and Output in the Open Economy:...

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