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Eco 202 ch 32 macroeconomics of an open economy
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Eco 202 ch 32 macroeconomics of an open economy

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  • 1. Exam 5Chapter 32 and 33 Tuesday April 23
  • 2. Chapter 32The Macroeconomics of Open Economies
  • 3. Key Termsclosed economy net capital outflowopen economy nominal exchange rateexports appreciationimports depreciationnet exports real exchange ratetrade balance purchasing power paritytrade surplustrade deficitbalanced trade
  • 4. Global Device
  • 5. ARM Holdings Wolfson Marvel Skyworks U.S. CSR Linear Technologies U.K. NXPNational Semiconductor Germany Sharp Korea Samsung Toshiba Japan Infineon Broadcom Taiwan Numonyx Micron China Dialog Semiconductor Texas Instruments STMicroelectronics Silicon Storage RF Microdevices Cirrus Logic
  • 6. Trade can makeeveryone better off
  • 7. Open Economy An economy that interacts freely withother economies around the world
  • 8. Closed Economyan economy that doesnot interact with othereconomies around the world
  • 9. ExportsGoods and services that are produced domestically and sold abroad
  • 10. ImportsGoods and services that are produced abroad and sold domestically
  • 11. Net Exports The value of a nation’sexports minus the value ofits imports; also called the trade balance
  • 12. Trade Balance The value of a nation’sexports minus the value ofits imports; also called the net exports
  • 13. Net Exports= Exports - Imports
  • 14. Trade SurplusAn excess of exports over imports
  • 15. Trade DeficitAn excess of imports over exports
  • 16. Balanced TradeWhen imports equal exports
  • 17. Net Capital Outflow The purchase of foreignassets by domestic residents minus the purchase of domestic assets by foreigners
  • 18. Foreign Direct Investment FDIDirectly investing increating a company
  • 19. Foreign Portfolio Investment FPIBuying stock in a foreign company
  • 20. Nominal Exchange RateThe rate at which a person can trade the currency of one country for the currency of another
  • 21. Appreciation An increase in the valueof a currency as measured by the amount of foreign currency it can buy
  • 22. DepreciationA decrease in the value of a currency as measuredby the amount of foreign currency it can buy
  • 23. Foreign Exchange RateThe rate at which a person can trade the goods andservices of one country for the goods and services of another
  • 24. Purchasing Power Parity A theory of exchange rates whereby a unit of any givencurrency should be able to buy the same quantity of goods in all countries
  • 25. Purchasing Power ParityCost the same around the world?
  • 26. Big Mac Economics $4.37 x 3.75 = 16.38 3.75 to 1 or .267 to 1 11 SR x .267 = $2.93Implied Exchange Rate 4.37 to 11 = 2.52 to 1 Currency is undervalued by 33 percent Buy Big Macs in Saudi for 11($2.93) and resell in the U.S. for 16.38 ($4.37) and make 49% profit

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