ECO2004S Summary that will change everything! (1).pdf

Nvestment is reflected in increased savings n the

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nvestment is reflected in increased savings n the trade balance NX budget deficit (T-G) is reflected as a decrea ncrease in private savings not balance nt = savings s OR a ase in
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- A country with h trade surplus CHAPTER 20: OUTPUT T RATE Equilibrium in the goods ma Basically if you don’t kn Two main characteristi 1. An increase in spending, and decrease outp 2. increase in th foreign goods through the m In the SR there is no in together There is also no inflation so r = Equilibrium in the Financial In an open economy in 1. Money 2. Domestic 3. Foreign b The original LM model In closed economy high savings must have a high investment THE INTEREST RATE AND THE EXC arket now this by now you’re fucked ics: n the real interest rate leads to a decrease d to a decrease in the demand for domestic put through multiplier he real exchange rate leads to a shift in dem s, and to a decrease in net exports decre multiplier nflation so nominal and real exchange rates = i l Market nvestors choose between: c bonds bonds l holds: rate or large CHANGE in investment c goods mand toward ease in output s move
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But now we must consi foreign bonds play a ro According to this relati - Increase exchange - Increase exchange - Increase increase Combining the IS and LM cu In the goods market ou rate IS: LM: Now we place the inter sider the interest parity condition seeing as ole so we must consider this effect on i: ion: e in the domestic interest rate leads to an in e rate e in the foreign interest rate leads to a decre e rate e in the expected future exchange rate leads in the current exchange rate urve utput is determined by the interest rate and rest parity into the equation to get: s though ncrease in the ease in the s to an d exchange
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There are now two effe 1. Higher i lowe 2. Higher i appr (due to increase The Effects of policies in an 1. Fiscal policy: suppose G appreciation decr - The change in Y in IM from the i ects that the interest rate has on the econom er I lower ZZ lower Y(output) reciation in E real SA goods more expensiv e IM) lower ZZ lower Y n open economy G increases C increases increase Y rease in NX Y is offset a bit by the decrease in NX due to increase in G In my: ve lower NX increase in i o the increase nterest parity
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2. Monetary policy: mone increase in the inter CHAPTER 21: EXCHNAG Types of exchange rates: 1. Fixed 2. Crawling peg 3. Bands 4. European monetary sy 1. Fixed exchange rates Devaluation = a decrea Revaluation = an increa Under fixed E fiscal pol powerful than it is und E. This is because fiscal triggers monetary acco etary contraction shifts lm curve left dec rest rate appreciation decrease Z and GE RATE REGIMES ystem ase in the exchange rate ase in the exchange rate licy is more der a flexible l policy ommodation crease output d Y
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Higher output leads to wages higher price CHAPTER 10: GROWTH Measuring Growth Main issue is the stand Need to compare outp
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