Comparison between open economy and close economy
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Transcript of Comparison between open economy and close economy
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OPEN ECONOMYOPEN ECONOMY
VS CLOSED ECONOMY
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OPEN ECONOMY
THE ROLE OF NET EXPORT
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OPEN ECONOMY
CAPITAL FLOWS AND TRADE BALANCE.
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OPEN ECONOMY
SAVING AND INVESTMENT(WOR
LD INTEREST RATE)
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If the economy were closed…r
S, I
I (r )
S
rc
cI
S
r
( )
…the interest rate would adjust to equate investment and saving:
…the interest rate would adjust to equate investment and saving:
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OPEN ECONOMY
FISCAL POLICY AT HOME
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OPEN ECONOMY
FISCAL POLICY ABROAD
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OPEN ECONOMY
SHIFT IN INVESTMENT
DEMAND
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Figure 5.5 A Shift in the Investment Schedule in a Small Open EconomyMankiw: Macroeconomics, Sixth EditionCopyright © 2007 by Worth Publishers
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EXCHANGE RATES
THE AMOUNT OF ONE CURRENCY NEEDED TO BUY ANOTHER CURRENCY.
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EXCHANGE RATESNOMINAL EX RATES:-RELATIVE PRICE OF TWO CURRENCY.
REAL EX RATES:-RELATIVE PRICE OF THE GOODS OF TWO COUNTRY.IT TELLS US THE RATE AT WHICH WE CAN TRADE THE GOOD OF ONE COUNTRY FOR THE GOOD OF ANOTHER.
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EXCHANGE RATESREAL EXCHANGE
RATE
NOMINAL EX RATE×PRICE OF DOMESTIC GOOD/PRICE OF FOREIGN
GOOD
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EXCHANGE RATESREAL EXCHANGE RATE AND
TRADE BALANCE
NX=NX(€)
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EXCHANGE RATES
DETERMINATION OF EXCHANGE
RATE
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EXCHANGE RATES
DETERMINATION OF REAL EXCHANGE RATE
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Figure 5.8 How the Real Exchange Rate is DeterminedMankiw: Macroeconomics, Sixth EditionCopyright © 2007 by Worth Publishers
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EXCHANGE RATES
HOW POLICIES INFLUENCE THE REAL
EX RATE
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Figure 5.9 The Impact of Expansionary Fiscal Policy at Home on the Real Exchange RateMankiw: Macroeconomics, Sixth EditionCopyright © 2007 by Worth Publishers
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EXCHANGE RATES
SHIFT IN INVESTMENT DEMAND
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Figure 5.11 The Impact of an Increase in Investment Demand on the Real Exchange RateMankiw: Macroeconomics, Sixth EditionCopyright © 2007 by Worth Publishers
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EXCHANGE RATES
THE EFFECT OF TRADE POLICIES.
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