econ122lec4slides (1)

econ122lec4slides (1) - Econ 122 Lecture 4: CA Adjustments...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ 122 Lecture 4: CA Adjustments in a Large Open Economy Joel M. David UCLA August 11, 2010 Joel M. David (UCLA) August 11, 2010 1 / 7
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Introduction We have provided "microfoundations" for savings and investment behavior, and so the determination of the current account. We will brie&y examine a graphical method of examining the aggregate behavior of these variables. We will use this framework to think about a large open economy. Joel M. David (UCLA) August 11, 2010 2 / 7
Background image of page 2
Graphical Framework Joel M. David (UCLA) August 11, 2010 3 / 7
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Determining the Current Account Savings S ( r 1 , Q 1 ) is increasing in both the interest rate r 1 and output Q 1 . Interest Rate Substitution e/ect: higher r 1 makes lending more attractive. Income e/ect: ambiguous. If the country is a debtor, higher r 1 decreases wealth, lowering consumption and increasing savings. If country is a creditor, income e/ect increases consumption and reduces savings. Higher r 1 leads to lower pro&ts in period 2 and so lower income. This increases savings.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

econ122lec4slides (1) - Econ 122 Lecture 4: CA Adjustments...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online