Chapter 31 -- Carlos Pitta

Chapter 31 -- Carlos Pitta - Chapter 31 Open Economy...

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CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 1 Chapter 31 Open Economy Macroeconomics: Basic Concepts Instructor: Carlos Pitta
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CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 2 In this chapter, look for the answers to these questions: How are international flows of goods and assets related? What’s the difference between the real and nominal exchange rate? What is “purchasing-power parity,” and how does it explain nominal exchange rates? 0
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CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 3 Introduction One of the Ten Principles of Economics from Chapter 1: Trade can make everyone better off. This chapter introduces basic concepts of international macroeconomics: the trade balance (trade deficits, surpluses) international flows of assets exchange rates 0
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CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 4 Closed vs. Open Economies A closed economy does not interact with other economies in the world. An open economy interacts freely with other economies around the world. 0
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CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 5 Exports : Imports : Net exports (NX) = value of exports value of imports Another name for NX : the trade balance . 0
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Think! Think!     Variables that affect NX Variables that affect NX What do you think would happen to U.S. net exports if: A. Canada experiences a recession (falling incomes, rising unemployment) B. U.S. consumers decide to be patriotic and buy more products “Made in the U.S.A.” C. Prices of goods produced in Mexico rise faster than prices of goods produced in the U.S. 6 0
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Think! Think!     Answers Answers A. Canada experiences a recession (falling incomes, rising unemployment) U.S. net exports would fall due to a fall in Canadian consumers’ purchases of U.S. exports B. U.S. consumers decide to be patriotic and buy more products “Made in the U.S.A.” U.S. net exports would rise due to a fall in imports 7 0
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Think! Think!     Answers Answers C. Prices of Mexican goods rise faster than prices of U.S. goods This makes U.S. goods more attractive relative to Mexico’s goods. Exports to Mexico increase, imports from Mexico decrease, so U.S. net exports increase . 8 0
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CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 9 Variables that Influence Net Exports consumers’ preferences for foreign and domestic goods prices of goods at home and abroad incomes of consumers at home and abroad the exchange rates at which foreign currency trades for domestic currency transportation costs govt policies 0
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OPEN ECONOMY MACRO: BASIC CONCEPTS 10 NX measures the imbalance in a country’s trade in goods and services. Trade deficit
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This note was uploaded on 01/10/2011 for the course AEB 2514 taught by Professor Evandrummond during the Spring '09 term at University of Florida.

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Chapter 31 -- Carlos Pitta - Chapter 31 Open Economy...

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