Macro Bm Ch 4-6

Front 1

key difference between open and closed economies is...

Back 1

in an open economy, a country’s spending in any given year need not equal its

output of goods and services

Front 2

open economy's output = ____

Back 2

Cd + Id + Gd +exports of domestic goods and services

Front 3

Consumption, investment and government purchases of foreign goods

Back 3

imports

Front 4

C + I + G + NX =

Back 4

Y

Front 5

NX=

Back 5

Y - (C +I + G) or output minus domestic spending

Front 6

S - I = ___

Back 6

NX or trade balance

Front 7

net capital outflow is equal to (s-I)

Back 7

net capital outflow or net foreign investment

Front 8

situation arising when Y=c+I+G, S=I, net capital outflow is 0

Back 8

balanced trade

Front 9

Y>C+I+G and savings is larger than investment

Back 9

trade surplus

Front 10

Y<C+I+G and savings is less than investment, net capital outflow is less than zero

Back 10

trade deficit

Front 11

assumptions of small open economy

Back 11

output Y is fixed, consumption is positively related to disposable income, investment I is negatively related to the real interest rate

Front 12

NX = S(bar) - I(r*) where S bar is equal to

Back 12

Y bar minus C(Ybar minus taxes) minus G

Front 13

the difference between saving and investment at the world interest rate

Back 13

trade balance

Front 14

if a small open economy's government expands domestic spending by increasing G will

Back 14

reduce national saving, investment remains the same -- saving thus falls below investment and some investment must be financed by abroad so the fall in S implies a fall in NX since NX=S - I

Front 15

A decrease in taxes in an open economy will lower T and therefore ...

Back 15

raise disposable income(Y-T), stimulate consumption, and reduce national saving overall --- Reduction in national saving lowers NX

Front 16

increase in taxes will

Back 16

raise saving and thus NX= S-I so raise net exports

Front 17

if foreign governments increase government spending and influence r, then I is domestically reduced in SOE tf-->

Back 17

increased net exports and trade surplus

Front 18

starting from balanced trade, an outward shift in investment schedule causes

Back 18

trade deficit

Front 19

S- I =

Back 19

net exports

Front 20

reasons why capital doesn't flow to poor countries

Back 20

A (constant for production capability) is low, property rights are not enforced

Front 21

rise in exchange rate (assumed rate is expressed in units of foreign currency) means

Back 21

appreciation

Front 22

fall in exchange rate (assumed rate is expressed in units of foreign currency) means

Back 22

depreciation

Front 23

terms of trade

Back 23

the real exchange rate

Front 24

nominal exchange rate

Back 24

relative price of the currencies of two countries

Front 25

equation for real exchange rate

Back 25

Nominal Exchange Rate * Price of Domestic Good

/ Price of foreign good

Front 26

E = e (P /P*)

Back 26

real exchange rate is nominal exchange rate times ratio of price levels

Front 27

high real exchange rate implies

Back 27

foreign goods are relatively cheap and domestic goods are relatively expensive

Front 28

low exchange rate

Back 28

foreign goods are relatively expensive and domestic goods are relatively cheap

Front 29

if real exchange rate is low demand is...

Back 29

foreign goods demanded is low, and dometic goods demanded are high

Front 30

What happens to real exchange rate when domestic gov reduces national saving by increasing government purchases or cutting

taxes?

Back 30

moves s- I to the left

Front 31

What happens to the real exchange rate if foreign governments increase government purchases or cut taxes?

Back 31

moves s - I to the right because world s is lower and world I is higher, so NX trade surplus

Front 32

increase in investment demand's impact on real exchange rate

Back 32

shifts s - I line to the left and thus increases exchange rate

Front 33

protectionist policies impact in real exchange rate graph

Back 33

shift NX(E) curve to the right so higher exchange rate but net exports are unchanged

Front 34

% Change in e nominal exchange rate

Back 34

% Change in e % Change in P* % Change in P.

Front 35

%change in e nominal exchange rate wrt inflation

Back 35

%change in E + (pi*-pi)

Front 36

If a country has a high rate

of inflation relative to the United States, a dollar will buy

Back 36

increasing amount of the foreign

currency over time.

Front 37

a country has a low rate of inflation relative to the United States

Back 37

a dollar will buy a decreasing amount of the foreign currency over time

Front 38

law of one price

Back 38

states that the same

good cannot sell for different prices in different locations at the same time

Front 39

purchasing power parity

Back 39

if international arbitrage is possible,

then a dollar (or any other currency) must have the same purchasing power in

every country

Front 40

excess of domestic saving over domestic

investment.

Back 40

net capital outflow

Front 41

amount received for our net exports

of goods and services

Back 41

trade balance

Front 42

amount that domestic investors lend abroad minus the amount that foreign

investors lend here

Back 42

net capital outflow

Front 43

in a LOE a reduction in national saving shifts which curves and what direction?

Back 43

saving curve in LF market left and NX curve in foreign exchange market left

Front 44

the average

rate of unemployment around which the economy fluctuates.

Back 44

natural rate of unemployment

Front 45

Any policy aimed at lowering the natural rate of unemployment

must either

Back 45

reduce the rate of job separation or increase the rate of job finding.

Front 46

unemployment caused by the time it takes workers to search for a job

Back 46

frictional unemployment

Front 47

change in the composition of demand among industries or regions

Back 47

sectoral shift

Front 48

the failure of wages to adjust to a level at which labor supply equals labor demand

Back 48

wage rigidity

Front 49

unemployment resulting from wage rigidity and job rationing

Back 49

structural unemployment

Front 50

high wages

make workers more productive. The influence of wages on worker efficiency

may explain the failure of firms to cut wages despite an excess supply of labor

Back 50

efficiency wage theory

Front 51

The more a firm pays its workers, the greater is

their incentive to stay with the firm,

thereby decreasing the time and money

spent hiring and training new workers.

Back 51

efficiency wage theory

Front 52

a high wage improves worker

effort -- improves risk of moral hazard

Back 52

efficiency wage theory

Front 53

the average quality of a firm’s workforce

depends on the wage it pays its employees -- adverse selection out of poor pay

Back 53

efficiency wage theory

Front 54

overall employment and inflation rate correlate with

Back 54

happiness