Chapter 7: The Goods MArket in an Open Economy 7-1: The IS Relation in the open Economy 7-2: Equilibrium Output and the trade balance 7-3 Increases in demand, domestic or Foreign 97-4: Depreciation, the Trade Balance, and output 97-5: Looking at dynamics The J-curve 7-6: Saving, Investment, and Trade Deficits 2003-7-13
2003-7-13 1 Chapter 7:The Goods Market in an Open Economy 7-1: The IS Relation in the open Economy 7-2: Equilibrium Output and the Trade Balance 7-3: Increases in Demand, Domestic or Foreign 7-4: Depreciation, the Trade Balance,and output 7-5: Looking at Dynamics:The J-Curve 7-6: Saving, Investment, and Trade Deficits
7-1: The s relation in the open Economy The demand for domestic goods The determinants of the demand for Domestic Goods o The determinants of c, and G o The Determinants of Imports o The Determinants of Exports 2003-7-13
2003-7-13 2 7-1: The IS Relation in the open Economy The Demand for Domestic Goods The Determinants of the Demand for Domestic Goods ⚫ The Determinants of C, I, and G ⚫ The Determinants of Imports ⚫ The Determinants of Exports
The Demand for Domestic Goods e In an open economy, the demand for domestic goods is given by z三C+|+G-EQ+Ⅹ (7.1) 2003-7-13 3
2003-7-13 3 The Demand for Domestic Goods In an open economy, the demand for domestic goods is given by Z ≡ C+I+G-εQ+X (7.1)
The Determinants of Cy, and Domestic demand C+I+G=C(Y-1)+(Y, r)+G 十 2003-7-13
2003-7-13 4 The Determinants of C, I, and G Domestic demand: C+I+G=c(Y-T)+I(Y,r)+G ( + ) (+, -)
The determinants of Imports ●Q=Q(Y,E) (72) 十 2003-7-13 5
2003-7-13 5 The Determinants of Imports Q=Q(Y,ε) (7.2) (+,-)
The Determinants of Exports ●×=×(Y",) 7.3) 2003-7-13 6
2003-7-13 6 The Determinants of Exports X=X(Y*,ε) (7.3) (+ ,+)
Figure: The Demand for Domestic Goods and Net Exports Demand DD Domestic demand (C+I+G) output DD Demand AA Imports( e Q) Output
Figure: The Demand for Domestic Goods and Net Exports Demand DD (a) Domestic demand (C+I+G) output DD Demand AA (b) Imports(εQ) Output
Figure: The Demand for Domestic Goods and Net Exports Demand DD ZZ AA Exports(x) Net exports, NX Y Output Trade surplus BC NX Trade defict
Figure: The Demand for Domestic Goods and Net Exports Demand DD ZZ AA (c) C B Exports(X) A Net exports ,NX Y YTB Output Trade surplus (d) YTB BC NX Trade defict
7-2: Equilibrium Output and the frade Balance The goods market is in equilibrium when domestic output equals the demand for domestic goods Collecting the relations we derived for the components of the demand for domestic goods, Z, Y=cCYT)+(Yr)+G-EQ(,)+X(Y*,)(74) 2003-7-13 9
2003-7-13 9 7-2: Equilibrium Output and the Trade Balance The goods market is in equilibrium when domestic output equals the demand for domestic goods: Y=Z Collecting the relations we derived for the components of the demand for domestic goods,Z, Y=c(Y-T)+I(Y,r)+G-εQ(Y,ε)+X(Y*,ε) (7.4)
Figure:Equilibrium Output and net exports Demand 45 Output, Y Net exports, NX Trade deficit Output, Y
Figure:Equilibrium Output and net exports Demand A (a) 450 Y Output, Y Net exports, NX (b) YTB B C Trade deficit Output, Y NX
