Open-Economy Macroeconomics
PROBLEMS AND APPLICATIONS .l How would me the flowing transactions affect U.S. exports, imports, and net exports? a, American art professor spends the summer touring museums in Europe. b, Students in Paris flock to see the latest movie from Hollywood. c, Your uncle...
Open-Economy Macroeconomics
QUESTIONS FOR REVIEW 1. Define exports and net capital outflow. Explain how and why they are related. 2. Explain the relationship among saving, investment, and net capital outflow. 3. If a Japanese car costs 500,000 yen, a similar American car costs $10,000, and a...
Open-Economy Macroeconomics
A FIRST THEORY OF EXCHANGE RATE DETERMINATION: PURCHASING-POWER PARITY The purpose of this chapter has been to develop some basic concepts that macro-economists use to study open economies. You should now understand how a nation’s trade balance is related to the...
Open-Economy Macroeconomics
CASE STUDY THE HAMBURGER STANDARD The second reason that purchasing-power parity does not always hold is that even tradable goods are not always perfect substitutes when they are produced in different countries. For example, some consumers prefer German cars, and...
Open-Economy Macroeconomics
LIMITATIONS OF PURCHASING POWER PARITY Purchasing-power parity provides a simple model of how exchange rates are determined. For understanding many economic phenomena, the theory works well. In particular, it can explain many long term trends, such as the depreciation...
