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Department of Professor: Rapach Summer 2009 ECON 312 Intermediate Macroeconomics Chapter Outline for “Chapter 12—Aggregate Demand in the Open Economy,” N. Gregory Mankiw, Macroeconomics, Sixth edition ( 12-1 The Mundell-Fleming Model The Key Assumption: Small Open Economy With Perfect Capital Mobility r = r*
The Goods Market and the IS* Curve Y = C(Y – T) + I(r*) + G + NX(e)
See Figure 12-1
The Money Market and the LM* Curve M/P = L(r*,Y)
See Figure 12-2
Putting the Pieces Together IS*: Y = C(Y – T) + I(r*) + G + NX(e)
LM*: M/P = L(r*,Y)
See Figure 12-3 12-2 The Small Open Economy Under Floating Exchange Rates Fiscal Policy See Figure 12-4
M/P = L(r*,Y)
Monetary Policy See Figure 12-5
Trade Policy See Figure 12-6
NX(e) = Y – C(Y – T) – I(r*) – G 12-3 The Small Open Economy Under Fixed Exchange Rates How a Fixed-Exchange-Rate System Works See Figure 12-7
CASE STUDY: The International Gold Standard
Fiscal Policy See Figure 12-8
Monetary Policy See Figure 12-9
Devaluation
Revaluation
CASE STUDY: Devaluation and the Recovery From the
Great Depression
Trade Policy See Figure 12-10
NX = S – I
Policy in the Mundell-Fleming Model: A Summary See Table 12-1 12-4 Interest-Rate Differentials Country Risk and Exchange-Rate Expectations Differentials in the Mundell-Fleming Model r = r* + theta
IS*: Y = C(Y – T) + I(r* + theta) + G + NX(e)
LM*: M/P = L(r* + theta,Y)
The expectation that a currency will lose value
in the future causes it to lose value today See Figure 12-11
CASE STUDY: International Financial Crisis:
CASE STUDY: International Financial Crisis: 12-5 Should Exchange Rates Be Floating or Fixed? Pros and Cons of Different Exchange-Rate Systems CASE STUDY: Monetary Union in the Speculation Attacks, Currency Boards, and Dollarization The Impossible Trinity See Figure 12-12
CASE STUDY: The Chinese Currency Controversy 12-6 From the Short Run to the Long Run: The Mundell-Fleming Model With a Changing Price Level IS*: Y = C(Y – T) + I(r*) + G + NX(e)
LM*: M/P = L(r*,Y)
See Figures 12-12 and 12-13 12-7 A Concluding Reminder Questions for Review: 1, 2, 3, 4, 5 Problems and Applications: 1, 2, 3, 4 |
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Disclaimer: pages.slu.edu is a service of Saint Louis University, Saint Louis University does not control, monitor or guarantee the information contained in these sites. For more information » |