The Aggregate Demand in an Open Economy

This chapter focuses on exchange rates and how they impact aggregate demand management in an open economy. It makes use of the C + I + G + (X - M) = GDP formula of the net trade balance in the economy, and takes into account the difference between world and domestic interest rates. There are many policy choices that governments face on trade, the simplest being whether to trade or not. Professor Sachs discusses foreign currency prices and exchange rates, currency devaluation and depreciation, and the exportation and importation of goods.


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