Principles of Economics- Mankiw (5th) 658

Principles of Economics- Mankiw (5th) 658 - 680 PA R T E L...

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680 PART ELEVEN THE MACROECONOMICS OF OPEN ECONOMIES economy. The preceding chapter introduced some of the key macroeconomic vari- ables that describe an economy’s relationship with other economies—including net exports, net foreign investment, and the real and nominal exchange rates. This chapter develops a model that shows what forces determine these variables and how these variables are related to one another. To develop this macroeconomic model of an open economy, we build on our previous analysis in two important ways. First, the model takes the economy’s GDP as given. We assume that the economy’s output of goods and services, as measured by real GDP, is determined by the supplies of the factors of production and by the available production technology that turns these inputs into output. Second, the model takes the economy’s price level as given. We assume the price level adjusts to bring the supply and demand for money into balance. In other words, this chapter takes as a starting point the lessons learned in Chapters 24 and
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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