宏观经济学曼昆七1-9chapter 5

1、CHAPTER 5The Open EconomyA PowerPointTutorialTo AccompanyMACROECONOMICS, 7th. EditionN. Gregory MankiwTutorial written by:Mannig J. SimidianB.A. in Economics with Distinction, Duke University M.P.A., Harvard University Kennedy School of GovernmentChapter Five1M.B.A., Massachusetts Institute of Techn

2、ology (MIT) Sloan School of ManagementWhen an economy is so-called, “open,” it means that a countrys spending in any given year is not equal to its output of goods and services. A country can spend more that it produces by borrowing from abroad, or it can spend less and lend the difference to foreig

3、ners. Lets turn to national income accounting to explain.Chapter Five2Y = C + I + G + NXNotice weve added net exports, NX, defined as EX - IM. Also, note that domestic spending on all goods and services is the sum of domesticspendChianptger Foivne services.domestics goods and services and on foreign

4、 goods and3is composed ofTotal demand for domestic outputInvestment spending by businesses and householdsConsumption spending by householdsGovernment purchases of goods and servicesNet exports or net foreign demandY = C + I + G + NXAfter some manipulation, the national income accounts identity can b

5、e re-written as:NX = Y - (C + I + G)Net ExportsDomestic SpendingOutputThis equation shows that in an open economy, domestic spending need not equal the output of goods and services.If output exceeds domestic spending, we export the difference: net exports are positive. If output falls short of domes

6、tic spending, we import the difference: net exports are negative.Chapter Five4Start with the national income accounts identity. Y = C + I + G + NX.Subtract C and G from both sides and obtain Y C - G = I + NX.Lets call this S, national saving.So, now we have S = I + NX. Subtract I from both sides to

7、obtain the new equation, S I = NX.This form of the national income accounts identity shows that an economys net exports must always equal the difference between its saving and its investment.S I = NXTrade BalanceNet Foreign InvestmentChapter Five5Net Capital Outflow = Trade BalanceS I = NXIf S - I a

8、nd NX are positive, we have a trade surplus. We would be net lenders in world financial markets, and we are exporting moregoods than we are importing. Simply put, if Saving Investment then Net Capital Outflow 0.If S - I and NX are negative, we have a trade deficit. We would be net borrowers in world

9、 financial markets, and we are importing more goods than we are exporting. Simply put, if Saving Investment then Net Capital Outflow S.r*I(r)NXInvestment, Saving, I, SChapter Five13A fiscal expansion in a foreign economy large enough to influence world saving and investment raises the world interest

10、 ratefrom r1* to r2*.Real interest rate, r*SThe higher world interest rate reduces investment in this small open economy, causing a trade surplus where S I.r *2NXr1*I(r)Investment, Saving, I, SChapter Five14An outward shift in the investment schedule from I(r)1 to I(r)2 increases the amount of inves

11、tment at the world interest rate r*.As a result, investment nowReal interest rate, r*exceeds saving I S, which means the economy is borrowing from abroad and running a trade deficit.Sr1*I(r)2I(r)1NXInvestment, Saving, I, SChapter Five15A MankiwMacroeconomics Case StudyThe U.S. Trade DeficitDuring th

12、e 1980s, 1990s, and 2000s, the U.S. ran large trade deficits, with the exact size fluctuating over time yet still quite large. In 2007, the trade deficit was $708 billion or 5.1% of GDP. As accounting identities require, this trade deficit had to be financed by borrowing from abroad (i.e. selling U.

13、S. assets abroad). During this period the U.S. went from being the worlds largest creditor to the largest debtor.What caused the U.S. trade deficit? There is no single explanation. But to understand some of the forces at work, look at national saving and domestic investment (remember that the trade

14、deficit is the difference between saving and investment).The start of the trade deficit coincided with a fall in national saving. This development can be explained by the expansionary fiscal policy in the 1980s. With the support of President Reagan, the U.S. Congress passed legislation in 1981 that

15、substantially cut personal income taxes over the next three years. Because these tax cuts were not met with equal cuts in government spending, the federal budget went into deficit. These budget deficits were the largest ever experienced in a period of peace and prosperity, and they continued long af

16、ter Reagan left office. According to our model, such a policy would reduce national saving, causing a trade deficit. Because the government budget and the trade balance went into deficit at the same time, these shortfalls were called the TWIN DEFICITS. Lets see what happens as things start to change

17、 in the 90s on the next slideChapter Five16A MankiwMacroeconomics Case StudyMore on the U.S. Trade DeficitThings started to change in the 1990s, when the U.S. federal government got its fiscal house in order. The first President Bush and President Clinton both signed tax increases, while Congress pu

18、t a lid on spending. In addition to these policy changes, rapid productivity growth in the late 1990s raising incomes and thus further increased tax revenue. These developments moved the U.S. federal budget to surplus, which in turn caused national savings to rise.In contrast to what our model predi

19、cts, the increase in national saving did not coincide with a shrinking trade deficit, because domestic investment rose at the same time. The likely explanation is that the boom in information technology caused an expansionary shift in the U.S. investment function. Even though fiscal policy was pushi

20、ng the trade deficit toward surplus, the investment boom was an even stronger force pushing the trade balance toward deficit.In the early 2000s, fiscal policy once again put downward pressure on national saving.With the second President Bush, tax cuts were signed into law in 2001 and 2003, while the

21、 war on terror led to substantial increases in government spending. The federal government was again running budget deficits. National saving fell into historic lows, and the trade deficit reached historic highs.A few years later, the trade deficit started to shrink, as the economy experienced a sub

22、stantial decline in housing prices (see Chapters 11 and 18). Lower house prices reduced housing investment. They also made households poorer, inducing them to reduce consumption and increase saving. The trade deficit fell from .1% of GDP as its peak in the fourth quarter of 2005 to 4.9% in the third

23、 quarter of 2007.The history of the U.S. trade deficit shows that this statistic, by itself, does not tell us much about what is happening in the economy. We have to look deeper at saving, investment, and the policies and events that cause them (and thus the trade balance) to change over time.Chapte

24、r Five17In the next few slides, well learn about the foreignexchange market, exchange rates and much more!Chapter Five18Lets think about when the United States and Japan engage in trade. Each country has different cultures, languages, and currencies, all of which could hinder trade. But, because of

25、the foreign exchange market, trade transactions become more efficient. The foreign exchange market is a global market in which banks are connected through high-tech telecommunications systems in order to purchase currencies for their customers.The next slide is a graphical representation of the flow

26、 of the trade between the United States and Japan, and how the mix of traded things might be different, but is always balanced. Also, notice how the foreign exchange market will play the middle-man in these transactions. For instance, the foreign exchange market converts the supply of dollars from t

27、he United States into the demand for yen, and conversely, the supply of yen into the demand for dollars.Chapter Five19In order for the U.S to pay for its imports of goods and services and securities from Japan, it must supply dollars which are then convertedinto yen by theforeign exchange market.Dem

28、andYEN Supply$Foreign Exchange MarketSupplyYENDemand$In order for Japan to pay for its imports ofgoods and services and securities from theU.S., it must supply yen which are then convertedChapter Five20into dollars by the foreign exchange market.The exchange rate between two countries is the price a

29、t which residents of those countries trade with each other. Economists distinguish between two exchange rates: the nominal exchange rate and the real exchange rate.The nominal exchange rate is the relative price of the currency of two countries.The real exchange rate is the relative price of the goo

30、ds of two countries.Chapter Five21Chapter Five22-relative price of the goods of two countries-sometimes called the terms of trade-denoted as e-relative price of the currency of two countries-denoted as eChapter Five23The nominal exchange rate is the relative price of the currency of two countries.Fo

31、r example, if the exchange rate between the U.S. dollar and the Japanese yen is 120 yen per dollar, then you can exchange a dollar for 120 yen in world markets for foreign currency. A Japanese who wants to obtain dollars would pay 120 yen for each dollar he bought. An American who wants to obtain ye

32、n would get 120 yen for each dollar he paid. When people refer to “the exchange rate” between two countries, they usually mean the nominal exchange rate.Suppose that there is an increase in the demand for U.S. goods and services. How will this affect the nominal exchange rate?S$eD$ shifts rightward

33、and increases the nominal exchange rate, e.This is known as appreciationof the dollar.Events which decrease thee1BAe0demand for the dollar, and thusD$ decrease e, would be aD$depreciation of the dollar.$Dollar Value of TransactionsChapter Five24eThe real exchange rate is the relative price of the go

34、ods of two countries. That is, the real exchange rate tells us the rate at which we can trade the goods of one country for the goods of another.To see the difference between the real and nominal exchange rates, consider a single good produced in many countries: cars. Suppose an American car costs $1

35、0,000 and a similar Japanese car costs 2,400,000 yen.To compare the prices of the two cars, we must convert them into a common currency. If a dollar is worth 120 yen, then the American car costs 1,200,000 yen. Comparing the price of the American car (1,200,000 yen) and the price of the Japanese car

36、(2,400,000 yen), we conclude that the American car costs one-half of what the Japanesecar costs. In other words, at current prices, we can exchange two American cars for one Japanese car.Chapter Five25We can summarize our calculation as follows:Real Exchange Rate = (120 yen/dollar) (10,000 dollars/A

37、merican car)(2,400,000 yen/Japanese Car)= 0.5 Japanese CarAmerican CarAt these prices, and this exchange rate, we obtain one-half of a Japanesecar per American car. More generally, we can write this calculation as Real Exchange Rate =Nominal Exchange Rate Price of Domestic GoodPrice of Foreign GoodT

38、he rate at which we exchange foreign and domestic goods depends on the prices of the goods in the local currencies and on the rate at whichthe cCuharptrereFnivce ies are exchanged.26Chapter Five27NominalReal ExchangeExchangeRatio of Price RateRateLevelse = e (P/P*)Note: P is the price level of the d

39、omestic country (measured in the domestic currency) and P* is the price level of the foreign country (measured in the foreign currency).The real exchange rate between two countries is computed from the nominal exchange rate and the price levels in the two countries. If the real exchange rate is high

40、, foreign goods are relatively cheap, and domestic goods are relatively expensive. If the real exchange rate is low, foreign goods are relatively expensive, and domestic goodsare relatively cheap.Chapter Five28Real ExchangeNominal ExchangeRatio of Price RateRateLevelse = e (P/P*)How does the level o

41、f prices effect exchange rates? It doesnt. All changes in a nations price level will be fully incorporated into the nominal exchange rate. It is the law of one price applied to the international marketplace.Purchasing-Power Parity suggests that nominal exchange rate movements primarily reflect diffe

42、rences in price levels of nations. states that if international arbitrage is possible, then a dollar mustIthave the same purchasing power in every country. Purchasing power parity does not always hold because some goods are not easily traded, and sometimes traded goods are not always perfect substit

43、utesbut it does give us reason to expect that fluctuations in the real exchange rate will be small and temporary.Chapter Five29The law of one price applied to the international marketplace suggests that net exports are highly sensitive to small movements in the real exchange rate.This high sensitivi

44、ty is reflected here with a very flat net-exports schedule.Real exchange rate, eS-INX(e)Net Exports, NXChapter Five30The relationship between the real exchange rate and net exports is negative: the lower the real exchange rate, the less expensive are domestic goods relative to foreign goods, and thus the greater are our net exports.The real exchange rate is determined by the intersection of the vert