Open Economy

Question 1

Open economy

Answer 1

Interacts with other economies in the world

Buy and sells goods and capital assets

Question 2

Net exports

Answer 2

Are the value of a nations exports minus the value of its imports

Affected by:
Price of goods home and abroad
Exchange rates
Income home and abroad
Transporting goods
Government policies for international trade

Question 3

Capital net outflow

Answer 3

Purchase of domestic assets by foreigners and purchase of foreign assets by domestic residents

Influenced by
Real interest rates on foreign assets
Real interest rates on domestic assets
Political risks 
Government policies

Question 4

Appreciation

Answer 4

Increase in the value of a currency

Question 5

Real exchange rates

Answer 5

Rate at which a person can trade goods and services of one country for the goods and services of another

It’s a comparison of domestic and abroad prices

Question 6

Big Mac index

Answer 6

Compare the price of similar products to predict exchange rates

Question 7

Closed economy

Answer 7

Does not interact with other economies in the world.

Question 8

Prices in the loanable market and the foreign currency

Answer 8

Adjust simultaneously home and abroad to balance supply and demand in both marketsi

Can determine net exports