Econ110BW11 - Lec18 A - GR_ol

Econ110BW11 - Lec18 A - GR_ol - Macroeconomics B Econ 110B,...

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Macroeconomics B Econ 110B, Winter 2011 Prof. Giacomo Rondina Lecture 18
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The Open Economy ± Equilibrium in the Market for Goods: the DD ZZ NX Diagram ± Fiscal Policies and Exchange Rate Policies 2 Openness in Goods and Financial Markets (Ch. 18)
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Equilibrium in the Open Economy: Market for Goods Closed Economy : Domestic Supply = Domestic Demand Y = C + I + G Open Economy : Total Supply of Domestic Goods = Total Demand for Domestic Goods YZ How to get Z ? =C+I+G / A = C + I + G – IM/ ε Z = A + X=C + I+ G + (X - IM/ ε ) C+I+G+(X / Equilibrium Equation 3 Openness in Goods and Financial Markets (Ch. 18) Y = C + I+ G + (X -IM/ ε )
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Equilibrium in the Open Economy: Market for Goods Y = C + I+ G + (X - IM/ ε ) ± Properties of Equilibrium in Open Economy Remember: Effects of Economic Policies in Short Run depend on effect of Demand on Supply ¾ Closed Economy: changes in Domestic Demand translates into changes in Domestic Supply pen Economy: changes in domestic demand do not necessarily translate into ¾ Open Economy: changes in domestic demand do not necessarily translate into changes in Domestic Supply 4 Openness in Goods and Financial Markets (Ch. 18)
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Equilibrium in the Open Economy: Market for Goods ± Domestic Demand () ( ) , D CIGC YT I Y r G = ++ = + + + + ±²³ 5 Openness in Goods and Financial Markets (Ch. 18)
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Equilibrium in the Open Economy: Market for Goods ± Domestic Demand () ( ) , D CIGC YT I Y r G = ++ = + + ± Demand for Imports + + ±²³ ( ) , IM IM Y ε + + = Higher domestic income Y means higher demand for goods, including foreign goods. 6 Openness in Goods and Financial Markets (Ch. 18)
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Equilibrium in the Open Economy: Market for Goods ± Domestic Demand () ( ) , D CIGC YT I Y r G = ++ = + + ± Demand for Imports + + ±²³ ( ) , IM IM Y ε + + = Higher price of domestic goods in terms of foreign goods means higher demand for foreign goods. 7 Openness in Goods and Financial Markets (Ch. 18)
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Equilibrium in the Open Economy: Market for Goods ± Domestic Demand () ( ) , D CIGC YT I Y r G = ++ = + + ± Demand for Imports + + ±²³ ( ) , IM IM Y ε + + = ± Demand for Exports ( ) * , XX Y + = Higher foreign income Y * means igher demand for goods 8 Openness in Goods and Financial Markets (Ch. 18) higher demand for goods, including domestic goods.
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Equilibrium in the Open Economy: Market for Goods ± Domestic Demand () ( ) , D CIGC YT I Y r G = ++ = + + ± Demand for Imports + + ±²³ ( ) , IM IM Y ε + + = ± Demand for Exports ( ) * , XX Y + = Higher price of domestic goods in rms of foreign goods means 9 Openness in Goods and Financial Markets (Ch. 18) terms of foreign goods means lower demand for domestic goods.
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Equilibrium in the Open Economy: DD ZZ NX Diagram emand D Demand DD DD : C ( Y - T ) + I ( Y ,r ) + G Increasing in Y Y 10 Openness in Goods and Financial Markets (Ch. 18)
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Equilibrium in the Open Economy: DD ZZ NX Diagram emand D Demand DD DD : C ( Y - T ) + I ( Y ,r ) + G IM/ ε AA : DD - IM ( Y , ε ) Flatter than DD AA Y 11 Openness in Goods and Financial Markets (Ch. 18)
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Equilibrium in the Open Economy: DD ZZ NX Diagram emand D Demand DD DD : C ( Y - T ) + I ( Y ,r ) + G ZZ IM/ ε AA : DD - IM ( Y , ε ) ZZ : AA+ X ( Y * , ε ) arallel to A AA Parallel to AA X Y 12 Openness in Goods and Financial Markets (Ch. 18)
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This note was uploaded on 01/18/2012 for the course ECON 101 taught by Professor Bansak during the Summer '07 term at San Diego State.

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Econ110BW11 - Lec18 A - GR_ol - Macroeconomics B Econ 110B,...

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