Lesson 8

    Cards (23)

    • What percentage of GDP did net exports account for in the UK in 2013?

      25%
    • How do exports depend on foreign income?
      Exports increase with higher foreign income
    • What happens to exports when home prices rise relative to foreign prices?
      Demand for exports falls
    • What are imports?
      Goods and services purchased from abroad
    • How do imports relate to domestic income?
      Imports rise with higher domestic income
    • What is the formula for imports?
      IM = m0 + mY
    • What does 'm' represent in the imports formula?
      The marginal propensity to import
    • How is net exports (NX) calculated?
      NX = X - m0 - mY
    • What does x0 represent in the net exports formula?
      x0 captures autonomous factors like price competitiveness
    • What effect does a rise in foreign GDP have on net exports?
      It causes net exports to shift upwards
    • What happens to net exports when domestic prices rise relative to foreign prices?
      Net exports shift downwards
    • How does a depreciation of the exchange rate affect net exports?
      It makes imports more expensive and exports cheaper
    • What is the full model of equilibrium GDP?
      AE = Y = C + I + G + NX
    • What does the full open economy multiplier with government represent?
      ko = 1/[1 - b(1 - t) + m]
    • Why is the full open economy multiplier smaller than previous multipliers?
      Because m > 0
    • What does the identity S + T + IM = I + G + X represent?
      Equality between injections and withdrawals
    • What does (T - G) represent in the rearranged identity?
      The budget surplus
    • How does fiscal policy affect the effectiveness of economic policy in an open economy?
      Higher income leads to higher imports
    • What is a constraint on expansionary fiscal policies?
      The size of the trade balance deficit
    • What does the Tinbergen principle state?
      Two objectives require two independent instruments
    • What happens to equilibrium GDP with changes in exogenous elements?
      Equilibrium GDP changes by a multiple
    • What factors influence the size of the multiplier?
      Sizes of b, t, and m
    • Why have prices been held constant in the model?
      Because a supply-side has not been developed