notes_macro_ch5 - MACROECONOMICS Georgios Karras*...

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Macro Notes © G.Karras 2010 MACROECONOMICS Georgios Karras* University of Illinois at Chicago * Professor of Economics; Mailing Address: Department of Economics, University of Illinois at Chicago, 601 S. Morgan St., Chicago, IL 60607-7121; e-mail: gkarras@uic.edu . Lecture Draft Do not cite without permission
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Macro Notes © G.Karras 2010, p.2 ││ 5 ││ THE OPEN ECONOMY 5.1. The Balance of Payments Credit Debit Balance Exports EX C A I m p o r t s I M Unilateral Transfers UT Current Account Balance CA = EX IM UT KA Capital Inflows CI Capital Outflows CO Capital Account Balance KA = CI CO Balance of Payments BP = CA+KA = 0
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Macro Notes © G.Karras 2010, p.3 Note: CA + KA = 0 Î CA = – KA Î CA = KA Î CA deficit = KA surplus or Î CA surplus = KA deficit Intuition: Capital Account shows how Current Account is financed
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Macro Notes © G.Karras 2010, p.4
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Macro Notes © G.Karras 2010, p.5
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Macro Notes © G.Karras 2010, p.6
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Macro Notes © G.Karras 2010, p.7 5.2. The Equilibrium Relationship revisited Closed-Economy Equilibrium: 0 = = + + = = + I S I G C Y G I C Y S S S G P 43 42 1 Open-Economy Equilibrium: NX I S NX I G C Y NX G I C Y S S S G P = + = + + + = = + 43 42 1
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Macro Notes © G.Karras 2010, p.8
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Macro Notes © G.Karras 2010, p.9
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Macro Notes © G.Karras 2010, p.10 5.3. The Small Open Economy: Equilibrium Open : NX 0 Î S I Small : takes the worldwide interest rate, r w , as given Case 1: Suppose r w
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This note was uploaded on 04/08/2010 for the course ECON econ218 taught by Professor Tom during the Spring '10 term at University of Illinois, Urbana Champaign.

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notes_macro_ch5 - MACROECONOMICS Georgios Karras*...

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