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Difference between open economy and close economy. http://www.unitedworld.edu.in/
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OPEN ECONOMYOPEN ECONOMY
VS CLOSED ECONOMY
OPEN ECONOMY
THE ROLE OF NET EXPORT
OPEN ECONOMY
CAPITAL FLOWS AND TRADE BALANCE.
OPEN ECONOMY
SAVING AND INVESTMENT(WOR
LD INTEREST RATE)
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:
OPEN ECONOMY
FISCAL POLICY AT HOME
OPEN ECONOMY
FISCAL POLICY ABROAD
OPEN ECONOMY
SHIFT IN INVESTMENT
DEMAND
Figure 5.5 A Shift in the Investment Schedule in a Small Open EconomyMankiw: Macroeconomics, Sixth EditionCopyright © 2007 by Worth Publishers
EXCHANGE RATES
THE AMOUNT OF ONE CURRENCY NEEDED TO BUY ANOTHER CURRENCY.
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.
EXCHANGE RATESREAL EXCHANGE
RATE
NOMINAL EX RATE×PRICE OF DOMESTIC GOOD/PRICE OF FOREIGN
GOOD
EXCHANGE RATESREAL EXCHANGE RATE AND
TRADE BALANCE
NX=NX(€)
EXCHANGE RATES
DETERMINATION OF EXCHANGE
RATE
EXCHANGE RATES
DETERMINATION OF REAL EXCHANGE RATE
Figure 5.8 How the Real Exchange Rate is DeterminedMankiw: Macroeconomics, Sixth EditionCopyright © 2007 by Worth Publishers
EXCHANGE RATES
HOW POLICIES INFLUENCE THE REAL
EX RATE
Figure 5.9 The Impact of Expansionary Fiscal Policy at Home on the Real Exchange RateMankiw: Macroeconomics, Sixth EditionCopyright © 2007 by Worth Publishers
EXCHANGE RATES
SHIFT IN INVESTMENT DEMAND
Figure 5.11 The Impact of an Increase in Investment Demand on the Real Exchange RateMankiw: Macroeconomics, Sixth EditionCopyright © 2007 by Worth Publishers
EXCHANGE RATES
THE EFFECT OF TRADE POLICIES.
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