Exam 3 Review

Exam 3 Review - ECON 2305 Exam 3 Review Spring 2011 Date:...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ECON 2305 Exam 3 Review Spring 2011 Date: Monday, April 25, 2011 Exam Makeup: 38 Multiple Choice Questions 75 Minutes #2 Pencil and Calculator Chapters: 18, 19, & 20; Evenly Weighted Chapter 18- Open-Economy Macroeconomics: Basic Concepts Net Exports = Exports Imports o Exports can be both goods and services o If NX < 0 Trade Deficit In following year, if NX < 0 deficit rises Net Capital Outflow (NCO) o Domestic resident purchases of foreign assets minus foreign residents purchasing of domestic assets o Net Exports = NCO = FAP Dom- DAP For US residents buy assets abroad o Foreign Direct Investment Domestic residents actively manage the foreign investment Example: McDonalds opens a fast-food outlet in Moscow o Foreign Portfolio Investment Domestic residents purchase foreign stocks or bonds supplying Loanable Funds to a foreign Firm Example: American buying stock in foreign company N ational Income Identity o Y = C + I + G + NX o Y C G = I + NCO o Y C T = I + NCO o S Private = S Public Nominal Exchange Rate o The rate at which one countrys currency trades for another o Represented by e Appreciation Strengthening An increase in the value of a currency Depreciation Weakening A decrease in the value of a currency Real Exchange Rate o (e x P)/P* o If e < 1 eP < P* US Goods Cheaper o If e = 1 Nominal Exchange Rate = P*/P o If e >1 eP > P* US Goods More Expensive o Basket of Goods o Single Goods Purchasing Power Parody o A theory of exchange rates whereby a unit of any currency should be able to buy the same quantity of goods in all countries o Based on the Law of One Price o Implies that nominal exchange rates adjust to 1 [Type text]...
View Full Document

Page1 / 5

Exam 3 Review - ECON 2305 Exam 3 Review Spring 2011 Date:...

This preview shows document pages 1 - 2. Sign up to view the full document.

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