International finance chapter 8 (国际金融英文版课件)

The marginal propensity to save (s) The marginal propensity to import (m)
The marginal propensity to consume domestic
product (1-s-m)
The spending multiplier in a small, open economy
THE PERFORMANCE OF A NATIONAL ECONOMY
We
judge a country’s macroeconomic performance against a number of broad objectives or goals. We can usefully divide these broad goals into two categories: internal balance and external balance.
Chapter 8 HOW DOES THE OPEN MACROECONOMY WORK?
HOW DOES THE OPEN MACROECONOMY WORK?
This
chapter develops a general framework for analyzing the performance of a national economy that is open to international transactions.
The value of this multiplier is the same whether the
initial extra spending is made by the government or a surge in consumption, a rise in private investment spending, or a rise in exports.
(Y-C-G)=(E-C-G)+(X-M) or S=Id+(X-M)= Id+ If
The spending multiplier in a small, open economy

When national spending rises in an economy, this extra spending sets off a multiplier process of expansion of domestic production and income.

THE PERFORMANCE OF A NATIONAL ECONOMY
In economics, a country's current account is one of the two components of its balance of payments, the other being the capital account (sometimes called the financial account). The current account consists of the balance of trade, net primary income or factor income (earnings on foreign investments minus payments made to foreign investors) and net cash transfers, that have taken place over a given period of time.
In this section, the aggregate supply curve is supposed to be a horizontal line.

Domestic production depends on aggregate demand
Domestic production depends on aggregate demand Y = AD =C+Id+G+(X-M) National expenditures (E): E=C+Id+G Y = AD(Y) = E(Y) + X – M(Y), (Y – C – G) = (E – C – G) + (X – M), or S = Id + (X – M)

A framework for macroeconomic analysis
Our analysis of the behavior of the economy in the short run is relatively Keynesian in that the price level is not immediately responsive to aggregate demand and supply conditions in the economy. The price level is sticky or sluggish in the short run. Our view of the economy in the longer run is more classical. In the long run, the price is flexible, the price inflation depends on the growth rate of the country’s money supply. The economy tends toward full employment.
The value of this multiplier is smaller in a small open
economy than the multiplier in a closed economy.
Imports rose but exports constant for this small
Foreign-Income Repercussionry, the more its spending tends to affect other countries.
importance of close trading ties is also evident in the large effect.
THE PERFORMANCE OF A NATIONAL ECONOMY
Internal
balance refers to a ideal state of domestic economy. Full employment, or an acceptably low unemployment rate The economy’s production grows over time. Price stability, or an acceptably low inflation rate
The
A more complete framework: three markets
The Domestic Product Market
The IS curve shows all combinations of domestic product levels and interest rates for which the domestic product market is in equilibrium Y = AD = C + Id + G + (X–M), or S = Id + (X – M) The IS curve is downward sloping: lower (higher) interest rates encourage (discourage) borrowing and spending, resulting in higher (lower) real GDP Exogenous shocks that shift the IS curve
THE PERFORMANCE OF A NATIONAL ECONOMY
External balance is usually defined as the achievement of a reasonable and sustainable balance of payments with the rest of the world. Most broadly, the goal may be to achieve balance in the country’s overall balance of payments. For some purposes we focus on a somewhat narrower reading of external balance, one that focuses on the country’s current account. It is a position that is sustainable in that the value for the current account balance can readily be financed by international capital flows.

Domestic production depends on aggregate demand

The economy’s potential for producing is determined by the supply-side capabilities of the economy. Supply-side capabilities include both the factor resources that the economy has available, and intangible influences such as technology, resource quality, climate, and motivation.