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Open Economy Macroeconomics - Coggle Diagram
Open Economy Macroeconomics
Open Economy
Definition:
Open economy
is the type of economy that interacts freely with other economies around the world. An open market economy interact with other markets in
two ways:
It
buys and sells goods and services
in world product markets and it
buys and sells capital assets
in world financial markets.
Interactions with other economies.
Product market linkage:
Consumers and firms have the opportunity to choose between domestic and foreign goods. Product-market linkage occurs through international trade.
financial market linkage:
Investors have the opportunity to choose between domestic and foreign assets. This constitutes the financial market linkage.
Factor market linkage
: Firms can choose where to locate production and workers to choose where to work. This is the factor market linkage.
Consequences of open market economy.
Balance of payments
Classification
Current Account
Capital Account
Definitions
Trade Balance
Current account balance
Balance of payments
Foreign Exchange Market
Exchange rate
Types
Nominal ER
Real ER
Determination of Exchange rate
Types
Floating
Fixed
Managed
Historical perspective.
Determination of Income in open economy.
Trade Deficits, Savings and investments.