o Intermediate Macroeconomics Lecture 14
Intermediate Macroeconomics Lecture 14
●●●| Effects of policies on real ex-rate Home fiscal policy(expansionary S↓→(-D)↓ Domestic currency invested abroad Domestic currency appreciates → Nominal ex-rate↑ Real ex-rate f(if prices do not change) >Domestic goods become more expensive Exports↓& imports↑ NX I
2 Effects of Policies on Real Ex-rate 1. Home fiscal policy (expansionary) → S ↓→ (S – I) ↓ → Domestic currency invested abroad ↓ → Domestic currency appreciates → Nominal ex-rate ↑ → Real ex-rate ↑(if prices do not change) → Domestic goods become more expensive → Exports ↓ & imports ↑ → NX ↓
●●● Effects of policies on rea|Ex-rate NX(E)
3 Effects of Policies on Real Ex-rate NX ε S-I NX(ε)
Oo. Effects of Policies on Real Ex-rate 2. Fiscal policy abroad (expansionary) Foreign↓ → foreign(S-)↓ →「*↑→1↓→(S-)↑ → Supply of domestic currency↑ → Nominal ex-rate↓ → Real ex-rate」 f prices keep the same) Domestic goods become cheaper → Exports↑& imports↓
4 Effects of Policies on Real Ex-rate 2. Fiscal policy abroad (expansionary) Foreign S ↓ → foreign (S-I) ↓ → r*↑→ I ↓→ (S-I) ↑ → Supply of domestic currency ↑ → Nominal ex-rate ↓ → Real ex-rate ↓(if prices keep the same) → Domestic goods become cheaper → Exports ↑ & imports ↓ → NX↑
●●● Effects of policies on rea|Ex-rate S-I NX(E) 5
5 Effects of Policies on Real Ex-rate NX ε S-I NX(ε)
●● Effects of policies on rea|Ex-rate 3. Change in investment demand I(r*) X(E LS NⅩ
6 Effects of Policies on Real Ex-rate 3. Change in investment demand I,S I ( r*) r S r* I’ I S NX NX( ) S-I
●●● Effects of policies on rea|Ex-rate 今(S-)↑ supply of domestic currency t domestic currency depreciates → nominal ex-rate↓ real ex-rate↓ domestic goods cheaper 今EX↑&M↓ 今NX↑
7 Effects of Policies on Real Ex-rate I↓ → (S-I) ↑ → supply of domestic currency ↑ → domestic currency depreciates → nominal ex-rate ↓ → real ex-rate ↓ → domestic goods cheaper → EX ↑ & IM ↓ → NX ↑
●● Effects of trade po|ices o Trade policies Tariff: placing a tax on foreign imports 2. Quota restricting the amount of imports
8 Effects of Trade Policies Trade policies 1. Tariff: placing a tax on foreign imports 2. Quota: restricting the amount of imports
●● Effects of trade policies o Consider an extreme case: prohibit imports → Imports↓&NX↑( at the original ex rate → supply for domestic currency↓ > domestic currency appreciates → ex-rates个
9 Effects of Trade Policies Consider an extreme case: prohibit imports → Imports ↓& NX ↑(at the original exrate) → supply for domestic currency ↓ → domestic currency appreciates → ex-rates ↑
●● Effects of trade policies o Prohibited trade policy E S-Ⅰ NX(8) NXI=NX2 NⅩ 10
10 Effects of Trade Policies Prohibited trade policy NX NX( ) S-I NX1=NX2