Macroeconomics week 9 (ec108)

Macroeconomics week 9
Module code: EC108
Lecturer: Natalie Chen




Topics
● The goods market in an open economy


The goods market in an open economy
The IS relation in the open economy
- In an open economy, the demand for domestic goods is



Where C, I and G constitute the total domestic demand for goods

Domestic demand:




- Imports are positively related to domestic income Y and to the real exchange rate ε




- Exports are positively related to foreign income Y* and negatively related to the real
exchange rate ε




(a) The domestic
demand for goods is an
increasing function of
income (input)
Demand for domestic goods
= subtract imports (b) and
add exports (c)
(d) the trade balance is a
decreasing function of
output