Economic policy in an open economy Flashcards
1
Q
What is open economy macroeconomics?
A
Economic systems where international transactions play a big role
2
Q
What are some key open ecomomies?
A
- UK
- Germany
- US
3
Q
With perfect capital mobility, in equilibrium
A
The domestic interest rate must be equal to foreign interest rate in equilibrium
4
Q
In the short run, higher G leads to:
A
Increase in real activity
5
Q
In the long run, higher G leads to
A
- Higher price level
- Current account deficit
6
Q
What does a rise in interest rates do?
A
Causes a massive capital inflow, and puts upwards pressure on the exchange rate
