ECO 1102 Lecture Notes - Lecture 13: Real Interest Rate, Price Level, Autarky

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ECO 1102 Full Course Notes
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ECO 1102 Full Course Notes
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Chapter 13: macroeconomic theory of small open economy brian to | march 2016. *note*: there is only 10 pages for chapter 13 but still important as it explains chapter 12 in depth* 3 assumptions for our small open economy model: level of gdp is a given, price level is fixed, real interest rate is equal to world interest rate & is taken as given. Supply & demand for loanable funds & foreign-currency exchange. Focus is on supply & demand on 2 markets to understand. Market for foreign currency exchange: exists b/c ppl want to trade goods, services, & financial assets w/ ppl in other countries, but they want forces at work in an open economy: Interest rate = no longer determined by demand & supply of loanable funds: quantity of loanable funds made available by savings of. Difference btw/ national saving & domestic investment represents net capital outflow.

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