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.

http://www.unitedworld.edu.in/

Campus Ahmedabad Campus: Karnavati Knowledge Village,

A/907,Uvarsad, S.G.Highway, Gandhinagar

Kolkata Campus: Infinity Benchmark Tower 10th Floor, Plot - G1, Block - EP& GP, Sec - V, Salt Lake, Kolkata.

Reg. Office: 407, Zodiac Square, 4th Floor Opp. Gurudwara, S.G. Road, Bodakdev, Ahmedabad.