Flashcards in Chapter 13 - Macroecon. Theory of Open Economy Deck (20):
Saving is positive on real inflation rates (r) (t/f)
Domestic investment (I) is positive w/ real inflation rates (r) (t/f)
false - it is negative
A fall in "r" shows that the assets are more attractive (t/f)
false - they are less attractive after a fall in "r"
Q of LF by Canadian saving = Q of LF for domestic investment (t/f)
false - they are not equal b/c differ at NCO.
Market for foreign currency exchange exists b/c...
ppl want to be paid in own currency
Demand for $ - foreign need to buy Can exports
S for $ - Can sell money to get foreign currency to buy imports
Real exchange rate...
balances S+D in market for foreign currency exchange
D curve (f-c exch) is...
down slope b/c higher exchange rate makes exports more expensive.
S curve (f-c exch) is...
vertical b/c Q of money supplied for NCO d/n relate to real inflation rate.
if a Canadian buys import, does it affect S or D?
Demand for dollar decreases - incr in import reduces NX (as shown b/f NX=D for $)
if foreigner buys Canadian asset, does it affect S or D?
S of Money falls - reduces NCO (as shown b/f NCO=S of $)
Budget Deficit Effects... (5)
1. national saving falls; 2. real inflation rate rises; 3. domestic investment and NCO fall; 4. real exchange rate appreciates;
5. NX falls
NCO links both markets (t/f)
-LF market + f-c exchange market
-which formulas show this
-NCO = NX and S = I + NCO
If there is an increase in world inflation rates...
crowd out domestic investment ($ depreciates + NX rises)
If there is a gov't deficit...
negative saving - reduces S of LF, NCO + $ in f-c exchange market
a tax on imported Goods
import quota is...
limit Q of a Good imported + sold.
-causes incr in D for $ in f-c exchange market (appr of real exchange rate)
-has no effect on trade balance
Capital Flight is...
-higher impact if _____ which is_____
sudden reduction in D for assets in a country.
-higher impact if capital fleeing (f investors leave too)