An Open Economy Framework Daniels and Van Hoose

An Open Economy Framework Daniels and Van. Hoose An Open Economy Framework

Gross Domestic Product • Economist track the overall or aggregate amount of economic activity using gross domestic product (GDP) • GDP is the market value of all final goods and services produced within an economy during a given time period. Daniels and Van. Hoose An Open Economy Framework 2

Nominal versus Real • Nominal GDP measures the current market value of all final goods and services produced within an economy during a given time period. • Real GDP, in contrast, in a price-adjusted measure of aggregate output. • Real GDP is calculated by dividing nominal GDP by the GDP price deflator. Daniels and Van. Hoose An Open Economy Framework 3

Price Measures • The GDP price deflator is a measure of the overall price level of an economy. • The consumer price index (CPI) is a weighted sum of prices of goods and services that the government determines a typical consumer purchases each year. • The producer price index (PPI) is a weighted average of the prices of goods and services that the government determines a typical business receives from selling its products during a given year. Daniels and Van. Hoose An Open Economy Framework 4

The Circular Flow of Expenditures Daniels and Van. Hoose An Open Economy Framework 5

Saving, Imports and Consumption Daniels and Van. Hoose An Open Economy Framework 6

Changes in Desired Investment Daniels and Van. Hoose An Open Economy Framework 7

Government Spending and Net Taxes Daniels and Van. Hoose An Open Economy Framework 8

Exports Daniels and Van. Hoose An Open Economy Framework 9

Deriving the Aggregate Expenditures Schedule Daniels and Van. Hoose An Open Economy Framework 10

Two Approaches to Determining Equilibrium Real Income Daniels and Van. Hoose An Open Economy Framework 11

The Derivation of the IS Schedule Daniels and Van. Hoose An Open Economy Framework 12

The Money Demand Schedule Daniels and Van. Hoose An Open Economy Framework 13

Attaining Equilibrium in the Market for Real Money Balances Daniels and Van. Hoose An Open Economy Framework 14

The Derivation of the L-M Schedule Daniels and Van. Hoose An Open Economy Framework 15

Changes in the Real Money Supply Daniels and Van. Hoose An Open Economy Framework 16

IS-LM Equilibrium and Disequilibrium Daniels and Van. Hoose An Open Economy Framework 17

The BP Schedule Daniels and Van. Hoose An Open Economy Framework 18

IS-LM Equilibrium and the BP Schedule Daniels and Van. Hoose An Open Economy Framework 19