Introduction Macroeconomic changes that affect exchange rates interest rates, and price levels may also affect output This chapter introduces a new theory of how the output market adjusts to demand changes when product prices are themselves slow to adjust A short-run model of the output market in an open economy will be utilized to analyze The effects of macroeconomic policy tools on output and the current account The use of macroeconomic policy tools to maintain full employment Copyright C 2003 Pearson Education, Inc Slide 16-5Copyright © 2003 Pearson Education, Inc. Slide 16-5 Introduction ▪ Macroeconomic changes that affect exchange rates, interest rates, and price levels may also affect output. • This chapter introduces a new theory of how the output market adjusts to demand changes when product prices are themselves slow to adjust. ▪ A short-run model of the output market in an open economy will be utilized to analyze: • The effects of macroeconomic policy tools on output and the current account • The use of macroeconomic policy tools to maintain full employment