31Open-Economy Macroeconomics_Basic Concepts.pdfVIP

1? 2008 Thomson South-Western, all rights reserved N. G R E G O R Y M A N K I W Premium PowerPoint? Slides by Ron Cronovich 2007 update Open-Economy Macroeconomics: Basic Concepts31 ECONOMICS P R I N C I P L E S O F F O U R T H E D I T I O N CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 1 In this chapter, look for the answers to these questions: ? How are international flows of goods and assets related? ? What’s the difference between the real and nominal exchange rate? ? What is “purchasing-power parity,” and how does it explain nominal exchange rates? CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 2 Introduction ? One of the Ten Principles of Economics from Chapter 1: Trade can make everyone better off. ? This chapter introduces basic concepts of international macroeconomics: ? the trade balance (trade deficits, surpluses) ? international flows of assets ? exchange rates 2CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 3 Closed vs. Open Economies ? A closed economy does not interact with other economies in the world. ? CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 4 The Flow of Goods Services ? Exports: domestically-produced gs sold abroad ? Imports: foreign-produced gs sold domestically ? A C T I V E L E A R N I N G 1: Variables that affect NX What do you think would happen to U.S. net exports if: A. Canada experiences a recession (falling incomes, rising unemployment) B. U.S. consumers decide to be patriotic and buy more products “Made in the U.S.A.” C. Prices of goods produced in Mexico rise faster than prices of goods produced in the U.S. 5 3A C T I V E L E A R N I N G 1: Answers 6 CHAPTER 31 OPEN ECONOMY MACRO: BASIC CONCEPTS 8 Variables that Influence Net Exports ? consumers’ preferences for foreign and domestic goods ? prices of goods at home and abroad ? incomes of consumers at home and abroad ? the exchange rates at which foreign currency trades for domestic currency ? transportation costs ? govt policies CHA