Principles of Economics- Mankiw (5th) 646

Principles of Economics- Mankiw (5th) 646 - 668 PA R T E L...

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668 PART ELEVEN THE MACROECONOMICS OF OPEN ECONOMIES productivity, and real wages. In other words, given the fact that U.S. citizens are not saving much, it is better to have foreigners invest in the U.S. economy than no one at all. QUICK QUIZ : Define net exports and net foreign investment. Explain how they are related. THE PRICES FOR INTERNATIONAL TRANSACTIONS: REAL AND NOMINAL EXCHANGE RATES So far we have discussed measures of the flow of goods and services and the flow of capital across a nation’s border. In addition to these quantity variables, macro- economists also study variables that measure the prices at which these interna- tional transactions take place. Just as the price in any market serves the important role of coordinating buyers and sellers in that market, international prices help co- ordinate the decisions of consumers and producers as they interact in world mar- kets. Here we discuss the two most important international prices—the nominal and real exchange rates. NOMINAL EXCHANGE RATES
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