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Introduction
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Introductory Macroeconomics

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3

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Introduction




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The General
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Introductory Macroeconomics



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5
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Introduction



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S ummary


Introductory Macroeconomics


Concepts
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Keyy C

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Exercises
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Macroeconomics: The Dynamics of Commodity Production



Macroeconomics

Introduction

National
Nation al Income
I nco me Accounting
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An Enquiry into the
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National Income Accounting























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the sum total of the monetary value of
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Introductory Macroeconomics


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National Income Accounting


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Net Investment = Gross investment Depreciation

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Introductory Macroeconomics





















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National Income Accounting


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Introductory Macroeconomics




















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t t t

National Income Accounting



t
t t t Circular Flow of Income in a Simple Economy
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16

Introductory Macroeconomics


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National Income Accounting



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value of
production of the firm value of intermediate goods used by the firm



r r q s

Farmer Baker


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t
t
t
t t t
t t t t

value of production







18

Introductory Macroeconomics






change of inventories
of a firm during a year production of the firm during the year sale of the
firm during the year



x x
x x x





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t t t t t 19
t t t
t t t t t

National Income Accounting


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t t t t
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t t t t t t
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i GV Ai
i Qi Zi
GV Ai Vi Ai
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GVA GVA GVA





20 X X X
N
Introductory Macroeconomics

i NV Ai

NVAi GVAi Di
GVAi NVAi Di
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N
N

GDP




NDP
PPP











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Ci


Ii
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Gi

i
Xi
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RVi
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Ci Ii Gi Xi
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21

National Income Accounting




C
C Cm
C Cm

I Im
I
Im
G Gm

G
Gm G



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G Gm

C C I I G G

C I G C I G
C IGXM

X
M C I G





X G X M





s


M Wi
i Pi Ini Ri
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s GDP
22
P W P I R
Introductory Macroeconomics


s


C I G X M W + P + In + R













t t
s qrt qrt qrt
Diagramtic Representation of GDP by the Three Methods


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T

C S T

C IG XMCST
C
IGXMST

I G T M X
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M X t
M
X
G T M X

IS






23

National Income Accounting



















The foreigner is to have a share in your domestic economy.
Discuss this in the classroom.
























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24

Introductory Macroeconomics






s



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s


s s s P P
P

s
s

s s

r

s

Diagrammatic representation of the subcategories of aggregate income. NFIA: Net


Factor Income from Abroad, D: Depreciation, ID: Indirect Taxes, Sub: Subsidies, UP: Undistributed
Profits, NIH: Net Interest Payments by Households, CT: Corporate Taxes, TrH: Transfers recived
by Households, PTP: Personal Tax Payments, NP: Non-Tax Payments.

P 25

National Income Accounting







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q t

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26 t t t

Introductory Macroeconomics

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27
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National Income Accounting


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How uniform is the distribution of GDP? It still
seems that a majority of the people are poor
and only some have benefited.
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28


Introductory Macroeconomics


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Key Concepts


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29

National Income Accounting


s s
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Exercises
E xe s s


30


Introductory Macroeconomics


Macroeconomics: The Dynamics of Commodity Production

Macroeconomic Theory and Policy

Macroeconomics

Macroeconomics
P


e d ix 2.1
.1

Handbook of
Indian Economy
Appendix



31

National Income Accounting
















r r r rr Pr
Handbook
of Indian Economy

r P r Pr
r















r r r rr Pr
Handbook
of Indian Economy

Pr r r
32 r
r r
Introductory Macroeconomics

r
r















Money
M ney and
and Banking
Ba nk in g

barterdoubleexchanges
coincidence of wants




of

medium
exchange



unit of account








































34

Introductory Macroeconomics



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t






















M Td

M T kT
d

T
k










d 35
M T T vM T T
d

Money and Banking


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T
M T
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v


vM T
d




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t
t
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M T kPY
d
Y P









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X
X



X


X
Y
36

Introductory Macroeconomics

PV X Y












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approx.























d
r r
MS r r

r r
r
d
r r r M S


37

Money and Banking
















r


t






The Speculative Demand for Money
r r



r r






t

d d
Md M T M S
r r
Md kPY
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t

t



38

Introductory Macroeconomics





t


t

t

t t t


t























P P



39
t

Money and Banking




P P












q rs r s






Assets Rs Liability Rs






r







40

Introductory Macroeconomics


Assets (sources) Rs Liability (uses) Rs
P
Currency held by Public
qst Vault Cash held by Commercial Banks
s
qs
t t















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H H
t


t


t


41
H

Money and Banking



t

H

t

















ad infinitum

PP P PP P P P P P qP P
r sP P P P P P P P P
P P



Currency Deposits Money Supply















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t
t
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42
H


Introductory Macroeconomics


H P




t H t



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t t t

t

H R
qr s s q

r
r rr





t






High Powered Money in Relation to Total Money Supply
43

Money and Banking



































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P
Assets (sources) Rs Liability (uses) Rs

44
qrt q q qtt
Introductory Macroeconomics

q q q












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s st t s
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s

t t t s s s
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45
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Money and Banking




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Summary

Key Concepts
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Exercises
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46

Introductory Macroeconomics

P
r






r r r r Macroeconomics
P r
r r r Macroeconomic Theory and Policy
P Pr r r
r r Principles of Macroeconomics
P r

.1
p en d x 3.1


S a a.r a.r a.r a.r
Appendix

a r r
r
r.S a.r a.r a.r a.r n

S r.S a
or rS a

r
a r



.2
p en d x 3.2


Appendix

Year M1 M3

PPP P
PPP PP
PPP P
PPP
PPP 47
PPP P P

Money and Banking


PPP PPP
PPP P
PPP
PPPP P P
PPP P
P
P

Principles of Macroeconomics qsst


.3
p en d x 3.3

Appendix
Percentage Changes in
Year Loan to GOI Loan to Banks Foreign Assets













Principles of Macroeconomics P


48
Introductory Macroeconomics

Income
Inco
In co e Determination
Determin
Deter min tion



ceteris
paribus





x y
x y





















t




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s s s s s s s
s s
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s s s
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ss s ss
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s s
s s s
s c c
50 ss Y s s
C c Y c.Y
Introductory Macroeconomics

s s s s
s s s
s s s s s
s s s ss
s s s s
sss s
s
C c.Y
s s s
s s s s
s s s ss
ss c s s s s

s s s s s
s s s s s s
s
s s s s sP s s
s s s s
r r r r r
r r r r r r r
rr r
r r r r r r
r r r r
r
I
r rr r
r

r r r
r r
AD C I C I r
r r r
AD c.Y
r r r
Y c.Y
r Y r
rr r
Y c.Y
r r
r r r
rr r r r
r r r r r
r rr r Y
rr r r
51
r r r r
r

Income Determination
r
r rr
r

r r
rr r
r r
r unintended accumulation of inventories
r r r r
r r r r r
Y r r C I
Y C I r
r I r

r r r
r r r
r r r T
r r G r r
r r G r r

t
Yd Y T

t t
G c Y T
G c.T
t t
t t
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t
t
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t t
t
a b
t

t
t q
b ma m

t


b t a
b
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52 along the graph

Introductory Macroeconomics

m A Positively Sloping Straight Line Swings Upwards


m m as its Slope is Doubled
t
m t m
t
t
t t

m

t t

P t
t






m


rs
t A Positively Sloping Straight Line Shifts Upwards in
t Parallel as its Intercept is Increased

t
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s
y z x y x
t z
s s
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s
t
s s
Parametric Shift of z and Changing Equilibrium
s Values of x

z t x s
x x z x s s
x z
s s

x y z

x z z


z s
x y s
t y
x 53
t

Income Determination

x z
st
s Relationship between x and z



s s s
s s s


s
s t
s t
s s
s s s

How will the producer try to update his
s production plans in order to avoid excess supply
s or demand? Discuss this in the classroom.




s
t

t
t
t
t
t t

t

t

t t


Y c.Y
t
t t

t t
c t
Y t
54 C
t I
C I t Y t
Introductory Macroeconomics


Y t
t Y t
t
cY cY

Y t
Y AD t
t Y
Y

P

t
s t
t
t t
t t Y AD t t Y
t t t
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t c t t t
t t t t
t t t t t
t t t t t AD cY t t
t t t t t b ma
t t tt t c t t t
t c t t t t t t
t t t
t t t t t
t t t t t t t
t t AD t t
t tt t
t t
tt AD AD
t t t
t

t t t t
tt t AD
c t tt
t t
t t t t AD
tt t t
t t tt 55
t t
t t t

Income Determination
t tt Equilibrium Output and Aggregate Demand in the
t Fixed Price Model
t t
t A t AD tt t t E t
t t tt t
Y AD t
t tt t AD t
t t AD t t
tt Y Y F t t t tt Y Y E
t EF E F t t t t t
t t t t E
t t t t
t t t t t t
AD tt t t t t E t
t t tt
t Y AD t
t t t t tt t
t EG EG t t t t t
t t EF E J t t t












r

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56


Introductory Macroeconomics







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Consumption Aggregate Demand Output/Income














t






t

t





Y c
c c




t 57
t t t

Income Determination

Y







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t
Y




AD Y

s AD cY
s s s
s r r
s s rs s s s s
s s ss
s s Y s rss s
ts ss s
r s

s r s
ss s s
s s r
ss s
rss s r s
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s r s
ss s s
s sss s ss s s
s
ss
s


s s Y
P s S Y C Y cY
s s s
S Y C Y cY s
c ss s
58
s
Introductory Macroeconomics

s
s s
AD s
ss s
s c
s ss
s s A
s
s AD ss
s
s
s
s c
Paradox of Thrift Downward Swing of AD Line

s
Y


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Y





ummary
Summary

s


s
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s s s
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Keyy Concepts
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P 59
P

Income Determination
s
Exercises
s s

s

Ex

s s

s


P
s

P


Macroeconomics
P

Th e Governmen
The Go vernment :
Government
Fun ctio s and
unctions nd Scope
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stabilisation












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s t t t s
s s s
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s t

61
t

Function and Scope


The Government:
t t
t s t s t

t
t t
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t t s
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t t s
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s
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62
Introductory Macroeconomics

P P P

qr s The Components of the Government Budget













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s

s s
s

s s


s


r
s
s s s s
t s
s
63
s

Functions and Scope


The Government:

s s
P r
s r
s

s


s
s
s
s s
s
s s ts
t

s
s s




t




















t

64

Introductory Macroeconomics





t





t PPP PPP

q rs rrr
qr r qr r r qsssr
s qsssr rq r s s
s r rqr q s sq q
qr s s rs
s r qrr q
qr q s qq r
q r rq


r r


t

(As per cent of GDP) 1990 2000 2001 2002 2003
-91 -01 -02 -03 -04
P
P
s P
P

P
P
P
P
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P
P q
P
P

PP
P
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PP 65
P

Functions and Scope


The Government:
Economic Survey
r t
r r
r r




r r

The General Theory of Employment, Interest
and Money r
r r
r
surplus
deficit budget
r r
r balanced budget
r r
s
t r
rrs r

t s r
t
rs t r
r t G r
How does the Fiscal Policy try to achieve its
three basic objectives?
rr r r r r
r r r
Y r r YD rtrr
r rt
r r r r t r r
r r T r
rrs r t r r r r r



C cYD cY T
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r r r r r
r r r r rs r r r r
r r rs r
rr r r t

AD cY T I G
rrs r r
66 r r rr rs r rr r t r
r r r r
Introductory Macroeconomics

Y AD r r

Y c Y T I G
t t

Y*
cT c I G


r t r G r
r G T t r r G r
rr r rr r
rr r AD r t
r s r r
r E r r r
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Y G






G
G
Y Y P P
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s
Y * cT
Effect of Higher Government Expenditure





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67
s Effect of a Reduction in Taxes

Functions and Scope


The Government:
s s
s T
cT s s
s s



s



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G



Why is the poor man crying? Suggest
measures to wipe off his tears. T s

T
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t
t
t

s




s
t
t s
t


t G
t
t


Y G cG cG G c c
t
c t
68 t
Y cT cT T c c
Introductory Macroeconomics

G T
Y G


Y c Y T I
T


s
t t
T tY t

C c Y tY c t Y c
t

c t AD



AD c tY c I

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c
I G

Y AD
Y c t Y



Y * Government and Aggregate Demand (proportional
taxes make the AD schedule flatter)
s







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qrt

s
c

s 69
c ct c t

Functions and Scope


The Government:

G Increase in Government Expenditure (with
s proportional taxes)
Y c tY

Y



Y * Y


s
AD
AD





Effects of a Reduction in the Proportional Tax Rate
Y


c t








s s
s

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I I G G
C I G C I G





70


Introductory Macroeconomics








rPr





Y TR






Y

Y

Y





flow stock



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71

Functions and Scope


The Government:



















t t

t
t t

72


Introductory Macroeconomics

t
t

t t t
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P PP P P PP
PP P


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73
P

Functions and Scope


The Government:

P


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n cept




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q
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sr
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tt

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74 t t
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Introductory Macroeconomics

t t
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t t t
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Exercises

t
t
Ex

t


t C Y t
t
t
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t t C
I G TR t







C Y D I G T Y











Macroeconomics

Macroeconomics

Economic Survey

75

Functions and Scope


The Government:

Op en Economy
Open Ec
Ecoo om
Macr oecon omics
Macroeconomics



























































s


s






















t
















t

t
77

Macroeconomics
Openeconomy


t




t







t











t
t



r





t





P


78

Introductory Macroeconomics





where
Your currency in exchange for the dollar?
Should exchange rates between two currencies
foreign exchange
continue like this? Discuss.

foreign exchange market











t









s





P Pf e





t

ePf


s


s

79

Macroeconomics
Open Economy
s

s



s








P
P



s
s

t
s
s

s t
s r s s r
s s

s
s s s s s
s s t s s s

s s
s s
s
t s s
s s

s
s s
s
s
s s s s
s s s
80

Introductory Macroeconomics

s
s s s
s

s

s
s

ss e

s s


s
s
t s s


s Equilibrium under Flexible Exchange Rates
r r rrr rr
r r r P
t t
rr r t
t s
r r rr r
t sr r
ss r t r
t r
ss r t r t r
t ss r r
t rr t
r r P

r rr
t s sr Effect of an Increase in Demand for Imports in the
t r e tr Foreign Exchange Market
r r t s r t r t t r
r t sr s e1 t t r t
r r ss t r ss t
r r r r t t t r s t
r ss r t r t t r r
s rr t sr t e t s
r r t s
t r t r s t
s r r s
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Macroeconomics
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Introductory Macroeconomics


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Introductory Macroeconomics

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Introductory Macroeconomics

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