Economics Dynamics Problems 23

Economics Dynamics Problems 23 - Introduction 7 services....

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Unformatted text preview: Introduction 7 services. In other words, the inflow and outflow of goods and services to and from an economy. This was the emphasis of modelling under fixed exchange rates. But a deficit leads to a reduction in the level of a country’s stock of reserves. A surplus does the opposite. Repeated deficits lead to a repeated decline in a country’s level of reserves and to the money stock. Printing more money could, of course, offset the latter (sterilisation), but this simply complicates the adjustment process. At best it delays the adjustment that is necessary. Even so, the adjustment requires both a change in the flows and a change in stocks. What has all this to do with dynamics? Flows usually (although not always) take place in the same time period, say over a year. Stocks are at points in time. To change stock levels, however, to some desired amount would often take a number of periods to achieve. There would be stock-adjustment flows. These are inherently dynamic. Such stock-adjustment flows became highly significant in the 1970s anddynamic....
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This note was uploaded on 12/14/2011 for the course ECO 3023 taught by Professor Dr.gwartney during the Fall '11 term at FSU.

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