Study Guides (248,151)
Canada (121,346)
Economics (462)
ECON 1BB3 (163)

lecture 23 ~ chapter 13.docx

3 Pages
Unlock Document

Hannah Holmes

What is a small open economy? Interest rates in a small open economy  Open economy: allows goods, services and capital to flow across borders freely  Small open economy (soe): not large enough to affect world interest rates or world prices  Perfect capital mobility: full access to world financial market (Assuming); no restrictions on ownership of assets across borders Ex. Canada (most are small open economies; 4ish large open economies, china/us/japan (something happens domestically in these countries will hve an impact on Canada but not the other way around); North Korea  closed)  Interest rate parity: in theory, the real interest rate (in Canada) should equal real interest in world financial markets (if we have capitals flowing freely)  real interest rate in Canada = world interest rate o World wide market for loanable funds in every county goes to it in order to borrow for their investment projects, savings is supplies in this  for the world as a whole - what happends to the world market for loanable funds if there is a change in Canada regarding either savings or investment  not a big enough change to affect world interest rates or prices  ninja loan: no income no job or assets but still gets a loan (ex. to buy a house)  interest rate parity is not always perfect for two reasons: 1. risk  2. tax treatment Model of a small open economy Market for loanable funds  S – I = NCO (open)  if domestic saving is bigger than domestic investment, that means that Canadian households and governements are saving more than candians firms want to borrow  can look to borrow in foreign countries; foreign resident is buying a domestic product  if investment is bigger than saving  net capital flow is negative (when world interest rate is
More Less

Related notes for ECON 1BB3

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.