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  • Equilibrium in Open Economy

    Загружено:

    namita patharkar
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    This document discusses equilibrium in an open economy. It covers: 1) Goods market equilibrium, which depends on consumption, investment, government spending, imports and exports. An increase in interest rates decreases investment and output. 2) Financial market equilibrium is the same as a closed economy - money demand depends on output and interest rates. 3) Interest rate parity ensures no arbitrage between domestic and foreign interest rates after accounting for expected exchange rate changes. 4) The IS-LM model combines the goods and financial markets, showing how interest rate changes affect investment, net exports and output.

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    soumil

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    soumil

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    This document discusses equilibrium in an open economy. It covers: 1) Goods market equilibrium, which depends on consumption, investment, government spending, imports and exports. An increase in interest rates decreases investment and output. 2) Financial market equilibrium is the same as a closed economy - money demand depends on output and interest rates. 3) Interest rate parity ensures no arbitrage between domestic and foreign interest rates after accounting for expected exchange rate changes. 4) The IS-LM model combines the goods and financial markets, showing how interest rate changes affect investment, net exports and output.

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    © All Rights Reserved
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    10 просмотров2 страницы

    Equilibrium in Open Economy

    Загружено:

    namita patharkar
    This document discusses equilibrium in an open economy. It covers: 1) Goods market equilibrium, which depends on consumption, investment, government spending, imports and exports. An increase in interest rates decreases investment and output. 2) Financial market equilibrium is the same as a closed economy - money demand depends on output and interest rates. 3) Interest rate parity ensures no arbitrage between domestic and foreign interest rates after accounting for expected exchange rate changes. 4) The IS-LM model combines the goods and financial markets, showing how interest rate changes affect investment, net exports and output.

    Авторское право:

    © All Rights Reserved
    Скачайте в формате DOCX, PDF, TXT или читайте онлайн в Scribd
    Отметить как неприемлемый контент
    из 2

    Equilibrium in Open Economy

    goods market equilibrium

    Y = C(Y-T) + I(Y,r) + G IM(Y,)/ + X(Y*,)

    NX = X(Y*,) IM(Y,)/

    Y = C(Y-T) + I(Y,r) + G + NX(Y,Y*,)

    increase in real interest rate >> decrease in investment >> decrease in


    output
    financial market equilibrium same in closed and open economy

    M/P = Y L(i)

    demand for domestic money mostly among domestic residents


    foreign residents would have to exchange money to use domestic money >>
    no point in them having a demand for domestic money (better off holding
    domestic bonds)

    interest parity condition >> it = i*t - (Et+1-Et)/Et

    E = Ee (1+i) / (1+i*)
    increase domestic interest rate >> decrease exchange rate >>
    appreciation of domestic currency
    IS/LM model combines financial/goods market equilibria and interest-parity

    IS: Y = C(Y-T) + I(Y,i) + G + NX(Y,Y*, Ee(1+i)/(1+i*))


    interest rate increase >> decrease in investment, net exports >>
    decrease in output, demand

    LM: M/P = Y L(i)

    equilibrium interest rate determines equilibrium exchange rate

    Effects of Policy on Equilibrium in Open EconomyupInflation

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