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Macroeconomics Cours - Coggle Diagram
Macroeconomics Cours
LARGE ECONOMIES
FIXED EXCHANGE RATE REGIME
FF CURVE
How does y impact y*?
Trade Balance Multiplier effect
: if
y
increases ---
q*
increases ---
y*
increases
so FF curve is an increasing function
How does FF shift up?
for a given y, if
dg* up
/
dM* up
/
de* up
HH CURVE
How does y* impact y ?
Trade Balance multiplier effect
:
y*
increases ---
x
(export of national country) increases ---
y
increases
If dominating effect then HH upwards sloping curve
Crowding out effect
:
y*
increases ---
Demand of $
increases ---
r
increases (negative impact on investments) ---
y
decreases
If domination effect then HH is a downwards sloping curve
Basics :*
"HH shows the variables which impact the output of the national country"
/ HH is in function of M
because national country is the dominated country as it defends to parity
SMALL ECONOMIES
FIXED EXCHANGE RATE REGIME
FLEXIBLE EXCHANGE RATE REGIME
System ensures BOP = 0!! with adjustment of e
BOP < 0 then £ down - more x less z - BOP=0 back / BOP>0 then £ more - more z less z back to BOP=0
1) Determine the system of equations /
Exo : P, M,g, y star ,r star, P star
/ Endo:
y, r, e
Graphic representation : LM increasing, IS decreasing B=0 depending on mobility
a) Before adjustment of e / after adjustment of e - plus B=0 e in IS / put y and r on the left
Note: :red_flag: In the trade balance - could be Marginal Propensity to import, just replace with the value
2)
Monetary Policy
Determine the multiplier
Find multiplier before adjustment, when de=0
dy <0 and dr >0
Explain the effect
Contractionary dMs <0
Goods market
Balance of Trade
Determinants
Imports
:
z=z(y+;q+ )
increases with
y
and increases with
q
/
Exports :
x=x (y*+ : q-)
What happens when devaluation occurs (q decreases?)
Marshal Lerner condition
:
The balance of trade is a decreasing function of the real exchange rate if the sum of elasticity for imports and exports (in absolute value) is greater than one
when q decreases, valuation effect first BOP<0 / Volume effects appears later
IS curve
Shifts to the left by dg>0 , dy*> 0 , dq < 0
Monetary Market
LM curve
Shift to the right by dMs > 0
Foreign exchange market
- Balance of payment
Balance of Trade
Financial account
When Perfect Mobility of capital
r=r* - eâ
When Imperfect Mobility of capital
Note: equilibrium is achieved with the variation of e but the Fx market is stable when Marshall Lerner condition is satisfied :
Ex: is BOP <0 then excess of supply of £ leading to drop of Fx rate e to get BOP=0
B=0 curve
:warning:
Basic interrelations
IS curve
q
increases ---
IS
down
Appreciation
---
q
decreases