ch18 - OPENECONOMY OPENECONOMY MACROECONOMICS:...

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OPEN-ECONOMY  OPEN-ECONOMY  MACROECONOMICS: MACROECONOMICS: BASIC CONCEPTS BASIC CONCEPTS OPEN-ECONOMY MACROECONOMICS: BASIC CONCEPTS 1
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In this chapter,  In this chapter,  look for the answers to these questions: 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? 2
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OPEN-ECONOMY MACROECONOMICS: 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
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OPEN-ECONOMY MACROECONOMICS: BASIC CONCEPTS 4 Closed vs. Open Economies Recall some important concepts: A closed economy does not interact with other economies in the world. An open economy interacts freely with other economies around the world. It buys and sells goods and services in world product markets. It buys and sells capital assets in world financial markets.
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OPEN-ECONOMY MACROECONOMICS: BASIC CONCEPTS 5 Exports : Imports : Net exports (NX) , aka the trade balance = value of exports value of imports
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OPEN-ECONOMY MACROECONOMICS: BASIC CONCEPTS 6 NX measures the imbalance in a country’s trade in goods and services. Trade deficit ( NX<0 ) : an excess of imports over exports Trade surplus ( NX>0 ) : an excess of exports over imports Balanced trade ( NX=0 ) : when exports = imports
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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. A C T I V E  L E A R N I N G   A C T I V E  L E A R N I N G   1 1         Variables that affect NX Variables that affect NX 7
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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 A C T I V E  L E A R N I N G   A C T I V E  L E A R N I N G   1 1         Answers Answers 8
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Prices of Mexican goods rise faster than prices of U.S. goods This makes U.S. goods more attractive relative to Mexico’s goods.
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This note was uploaded on 01/17/2012 for the course ECON 002 taught by Professor Eudey during the Fall '08 term at UPenn.

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ch18 - OPENECONOMY OPENECONOMY MACROECONOMICS:...

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