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File: Principles Of Economics Mankiw Pdf 126957 | 32 Macroecon Theory Of Open Economy
seventh edition principles of economics 190 1 n gregory mankiw n 1831 soer gch ejci ow chapter a macroeconomic 32 theory of the open economy 2015 cengagelearning all rights reserved ...

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      Seventh Edition
              Principles of
        Economics                                                                              )
                                                                                               190
                                                                                               1-
          N. Gregory Mankiw                                                                    n 1831(
                                                                                               soer
                                                                                               Gch 
                                                                                               ejci
                                                                                               oW
        CHAPTER                      A Macroeconomic 
            32                              Theory of the 
                                         Open Economy
 © 2015 CengageLearning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as 
 permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
       In this chapter, 
       look for the answers to these questions
      • In an open economy, what determines the real 
         interest rate?  The real exchange rate?  
      • How are the markets for loanable funds and 
         foreign-currency exchange connected?  
      • How do government budget deficits affect the 
         exchange rate and trade balance?  
      • How do other policies or events affect the 
         interest rate, exchange rate, and trade balance?
    © 2015 CengageLearning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as 
    permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
              Introduction
               The previous chapter explained the basic 
                      concepts and vocabulary of the open economy:
                      net exports (NX), net capital outflow (NCO), 
                      and exchange rates.
               This chapter ties these concepts together into a 
                      theory of the open economy. 
               We will use this theory to see how govt policies 
                      and various events affect the trade balance, 
                      exchange rate, and capital flows.  
               We start with the loanable funds market…
  © 2015 CengageLearning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as                                                                             2
  permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
              The Market for Loanable Funds
               An identity from the preceding chapter: 
                                                                               S =  I +  NCO
                                         Saving                                       Domestic                                               Net capital 
                                                                                   investment                                                      outflow
               Supply of loanable funds = saving.
               A dollar of saving can be used to finance:
                          the purchase of domestic capital
                          the purchase of a foreign asset
               So, demand for loanable funds = I + NCO
  © 2015 CengageLearning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as                                                                             3
  permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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...Seventh edition principles of economics n gregory mankiw soer gch ejci ow chapter a macroeconomic theory the open economy cengagelearning all rights reserved may not be copied scanned or duplicated in whole part except for use as permitted license distributed with certain product service otherwise on password protected website classroom this look answers to these questions an what determines real interest rate exchange how are markets loanable funds and foreign currency connected do government budget deficits affect trade balance other policies events introduction previous explained basic concepts vocabulary net exports nx capital outflow nco rates ties together into we will see govt various flows start market identity from preceding s i saving domestic investment supply dollar can used finance purchase asset so demand...

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