ECON 114 Lecture Notes - Lecture 13: Import Quota, Capital Accumulation, Government Budget Balance
Document Summary
Chapter 13 a macroeconomic theory of the small open economy. A macroeconomic theory of the small open economy: The goal of the model in this chapter is to highlight the forces that determine the economy"s trade balance and exchange rate. To understand what factors determine a country"s trade balance and how government policies can afect it, we need a macroeconomic theory of the small open economy. Assumpions for our small open economy model: the level of gdp is a given, the price level is ixed, the real interest rate is equal to the world interest rate and is taken as given. Supply and demand for loanable funds and for foreign-currency exchange: The focus is on supply and demand on two markets to understand the forces at work in an open economy: market for loanable funds, market for foreign currency exchange. The place to start to understand the market for loanable funds in a small open economy is with this idenity:
