1、Chapter 13 A Macroeconomics Theory of the Open EconomyOpen EconomiesAn open economy is one that interacts freely with other economies around the world. A Macroeconomics Theory of the Open Economy Key Macroeconomic Variables in an Open Economy The important macroeconomic variables of an open economy
2、include: net exports net foreign investment nominal exchange rates real exchange rates A Macroeconomics Theory of the Open Economy Basic Assumptions of a Macroeconomic Model of an Open Economy The model takes the economys GDP as given. The model takes the economys price level as given.SUPPLY AND DEM
3、AND FOR LOANABLE FUNDS AND FOR FOREIGN-CURRENCY EXCHANGE The Market for Loanable FundsS = I + NCO At the equilibrium interest rate, the amount that people want to save exactly balances the desired quantities of investment and net capital outflows.The Market for Loanable Funds The supply of loanable
4、funds comes from national saving (S). The demand for loanable funds comes from domestic investment (I) and net capital outflows (NCO).The Market for Loanable Funds The supply and demand for loanable funds depend on the real interest rate. A higher real interest rate encourages people to save and rai
5、ses the quantity of loanable funds supplied. The interest rate adjusts to bring the supply and demand for loanable funds into balance.Figure 1 The Market for Loanable FundsQuantity ofLoanable FundsRealInterestRateSupply of loanable funds(from national saving)Demand for loanablefunds (for domesticinv
6、estment and netcapital outflow)EquilibriumquantityEquilibriumreal interestrateThe Market for Loanable Funds At the equilibrium interest rate, the amount that people want to save exactly balances the desired quantities of domestic investment and net foreign investment.The Market for Foreign-Currency Exchange The two sides of the foreign-currency exchange market are represented by NCO and NX. NCO represents the imbalance between the purchases and sales of capital assets. NX represents the imbalance between exports and imports of goods and services.
