Saving and Investment in
Large Open Economies
Our analysis of the small open economy provided many useful results that apply to any
open economy. For a large open economy like the United States, this analysis ignores the
Do five (5) of the following questions .
Show all work on the numerical problems. No work shown, no credit. Calculators are
1. Define and Explain the following terms:
a) Impossible Trinity
Answers to Textbook Questions and Problems
CHAPTER 10Introduction to Economic Fluctuations
Questions for Review
When GDP declines during a recession, growth in real consumption and investment spending both
decline; unemployment rises sharply.
The modern world regards business cycles much as the ancient Egyptians
regarded the overflowing of the Nile. The phenomenon recurs at intervals, it is
of great importance to everyone, and natural causes of
The Taylor Principle and
We argued in Chapter 10 that monetary policy makers must adhere to the Taylor principle in order for the inflation rate to be stable. We can use the aggregate demand and
supply model to fo
The Algebra of the Aggregate
Demand and Supply Model
Algebraic analysis of the aggregate demand and supply model allows us to directly obtain all
of the results in Chapter 12, as well as a number of additional results.