Ch06-TheOpenEconomy试卷.ppt

* In the equation, ε is the only endogenous variable, hence this equation determines its value. * *** Note *** At the lower left corner of this graph, NX does NOT NECESSARILY EQUAL ZERO!!! * *** Note *** At the lower left corner of this graph, NX does NOT NECESSARILY EQUAL ZERO!!! * WARNING: Don’t let your students confuse the demand for dollars in the foreign exchange market with demand for real money balances (chapter 4), or the supply of dollars in the foreign exchange market with the supply of money (chapter 4). If you and your students are into details: NX is actually the net demand for dollars: foreign demand for dollars to purchase our exports minus our supply of dollars to purchase imports. Net capital outflow is the net supply of dollars: The supply of dollars from U.S. residents investing abroad minus the demand for dollars from foreigners buying U.S. assets. * WARNING: Don’t let your students confuse the demand for dollars in the foreign exchange market with demand for real money balances (chapter 4), or the supply of dollars in the foreign exchange market with the supply of money (chapter 4). If you and your students are into details: NX is actually the net demand for dollars: foreign demand for dollars to purchase our exports minus our supply of dollars to purchase imports. Net capital outflow is the net supply of dollars: The supply of dollars from U.S. residents investing abroad minus the demand for dollars from foreigners buying U.S. assets. * * * * * * Suggestion: Have your students do this experiment as an in-class exercise. Have them take out a piece of paper, draw the graph, then show what happens when there’s an increase in the country’s investment demand (perhaps in response to an investment tax credit). * * * * * * This graph really determines net capital outflows, not NX. But, the national accounting identities say that NX = net capital outflows, so we write “NX” on the graph as shown. A little bit later in the ch