N.

GREGORY MANKIW
PRINCIPLES OF

ECONOMICS
Eighth Edition

CHAPTER
A Macroeconomic Theory
32 of the Open Economy
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 Look for the answers to these questions:
• In an open economy, what determines the
real interest rate? The real exchange rate?
• How are the markets for loanable funds and
foreign-currency exchange connected?
• How do government budget deficits affect
the exchange rate and trade balance?
• How do other policies or events affect the
interest rate, exchange rate, and trade
balance?

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 Introduction
• Previous chapter: basic concepts and
vocabulary of the open economy:
– Net exports (NX)
– Net capital outflow (NCO)
– Exchange rates
• This chapter: theory of the open economy
– Melihat bagaimana kebijakan pemerintah dan
berbagai peristiwa mempengaruhi neraca
perdagangan, nilai tukar, dan arus modal

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 Pasar untuk Dana Pinjaman
• In an open economy, S = I + NCO
Saving = Investasi domestik + Net capital
outflow (arus keluar modal bersih)
• Supply of loanable funds
– dari national saving (S)
• Demand for loanable funds
– Untuk melakukan investasi dalam negeri
(I)
– dan net capital outflow (NCO)
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 Market for Loanable Funds
• When NCO > 0, net outflow of capital
– Pembelian bersih modal di luar negeri
• Negara mengalami arus keluar modal neto; pembelian bersih
modal di luar negeri menambah permintaan dana pinjaman
yang dihasilkan di dalam negeri.
• Ekspor > impor

• When NCO < 0, net inflow of capital

– Sumber modal yang berasal dari luar negeri
• Negara mengalami arus masuk modal neto; sumber daya modal
yang berasal dari luar negeri mengurangi permintaan dana
pinjaman yang dihasilkan di dalam negeri.
• Ekspor < Impor

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 How NCO Depends on the Real Interest Rate
Tingkat bunga riil, r, adalah
pengembalian riil atas asset Net capital outflow
domestic. r
Penurunan r membuat asset
domestik kurang menarik
dibandingkan asset asing. r1
 Orang” di AS membeli lebih r2
banyak asset asing
 Org” di luar negeri membeli NCO
lebih sedikit asset AS.
NCO rises. NCO
NCO1 NCO2
Semakin rendah r, NCO akan smkn besar.
Semakin tinggi r, NCO akan smkn kecil.
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 The Loanable Funds Market Diagram
Both I and NCO
Loanable funds depend negatively on r, so the
r D curve is downward-sloping.
S = saving r adjusts to balance supply
and demand in the LF market.

dalam perekonomian terbuka,

r1 permintaan dana pinjaman
datang tidak hanya dari
mereka yang menginginkan
D = I + NCO dana pinjaman untuk membeli
barang modal dalam negeri
LF tetapi juga dari mereka yang
Kurva trade ballace
menginginkan dana pinjaman
untuk membeli aset luar
negeri.

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 Active Learning 1
Budget Deficits and Capital Flows

Misalkan pemerintah mengalami defisit

anggaran (sebelumnya anggaran berimbang).
 Mengurangi bsr saving jadi supply turun
Gunakan diagram yang sesuai untuk
menentukan efek pada tingkat bunga riil dan
arus keluar modal neto.

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 Active Learning 1 Answers

A
The When
budget
higher rworking
deficit
makes withsaving
reduces
U.S. this
bondsmodel,
and
more keep
the in mind:
attractive
supply of
relative
LF,
ther LF
causing
to foreign to market
bonds,
rise. menentukan
reduces NCO. r (in left graph),
then this value of r menentukan NCO (in right graph).
Loanable funds Net capital outflow
r r
S2 Orang domestik
S1 sdkt beli brg luar.
Org asing banyak
r2 r2 beli brg domestik.

r1 r1

D1 NCO1
Supply berkurang sehingga r naik
LF NCO
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 Penukaran Mata Uang Asing
• Pasar untuk pertukaran mata uang asing
– Identity: NCO = NX
– Net capital outflow = Net exports
– NX is the demand for dollars:
• Orang asing membutuhkan dolar untuk
membeli ekspor bersih AS.
– NCO is the supply of dollars:
• Penduduk AS menjual dolar untuk
mendapatkan mata uang asing yang mereka
butuhkan untuk membeli asset asing.
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 Foreign-Currency Exchange
• The U.S. real exchange rate (E)
– Mengukur jumlah barang & jasa asing
yang diperdagangkan untuk satu unit
barang & jasa AS.
– E adalah nilai riil satu dolar di pasar untuk
pertukaran mata uang asing.

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 The Market for Penukaran Mata Uang Asing

Meningkatnya E membuat
barang” AS lebih mahal bagi E S = NCO
orang asing, mengurangi
permintaan luar negeri untuk
brg” AS dan dolar AS.
Kenaikan E tidak berpengaruh E1
pada saving atau investasi,
sehingga tidak mempengaruhi
NCO atau supply dolar. D = NX

E menyesuaikan untuk
Dollars
menyeimbangkan penawaran
dan permintaan dolar di pasar
pertukaran mata uang asing.

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 FYI: Menguraikan Penawaran dan
Permintaan
Ketika penduduk AS membeli barang impor, apakah transaksi
tersebut mempengaruhi penawaran atau permintaan di pasar
valuta asing? Two views:
1. Pasokan dolar meningkat. Orang tersebut perlu menjual
dolarnya untuk mendapatkan mata uang asing yang dia
butuhkan untuk membeli barang impor.
2. Permintaan dolar menurun. Peningkatan impor
mengurangi NX, yang kami anggap sebagai permintaan
dolar.
(Jadi, NX benar-benar permintaan bersih untuk dolar.)
• Kedua pandangan itu setara. Untuk tujuan kami, lebih
nyaman menggunakan yang kedua.

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 FYI: Menguraikan Penawaran dan
Permintaan
Ketika orang asing membeli aset AS, apakah
transaksi tersebut mempengaruhi penawaran atau
permintaan di pasar valuta asing? Two views:
1. Permintaan dolar meningkat. Orang asing
membutuhkan dolar untuk membeli aset AS.
2. Pasokan dolar turun. Transaksi mengurangi
NCO, yang kami anggap sebagai pasokan dolar.
(Jadi, NCO benar-benar pasokan bersih dolar.)

Sekali lagi, kedua pandangan itu setara. Kami akan

menggunakan yang kedua.
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 Active Learning 2
Budget deficit, exchange rate, NX
• Awalnya, anggaran pemerintah seimbang
dan perdagangan seimbang (NX = 0).
• Misalkan pemerintah mengalami defisit
anggaran. Seperti yang kita lihat
sebelumnya, r naik dan NCO turun.
• Bagaimana defisit anggaran mempengaruhi
nilai tukar riil AS? Neraca perdagangan?

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 Active Learning 2 Answers
Market for foreign-
Defisit anggaran mengurangi currency exchange
NCO dan supply dolar. S2 = NCO2
Nilai tukar riil terapresiasi,
E S1 = NCO1
mengurangi ekspor neto.
Karena NX = 0 awalnya,
defisit anggaran E2
menyebabkan defisit
E1
perdagangan (NX < 0).

D = NX

Dollars
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 • Jika Budget surplus  meningkatkan
tabungan nasional dan S di kurva pasar dana
pinjaman naik geser ke kanan. Sehingga R
turun. NCO naik  E turun (depresiasi)
r
S = saving
• Jika trade balance 

r1

D = I + NCO

LF
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 The “Twin Deficits” Net exports and the budget deficit
6.00%
often move in opposite directions.
U.S. federal
budget deficit
4.00%
Percent of GDP

2.00%

0.00%

-2.00%
U.S. net exports
-4.00%

-6.00%
1961- 1966- 1971- 1976- 1981- 1986- 1991- 1996- 2001- 2006- 2011-
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

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 SUMMARY
• The effects of a budget deficit
– National saving falls.
– The real interest rate rises.
– Domestic investment and net capital
outflow both fall.
– The real exchange rate appreciates.
– Net exports fall (or, the trade deficit
increases).

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 SUMMARY
• One other effect:
– Ketika orang asing memperoleh lebih banyak aset
domestik, utang negara ke seluruh dunia meningkat.
Due to many years of budget and trade deficits, the U.S. is now the
“world’s largest debtor nation.”

International Investment Position of the U.S.

30 June 2016
Value of U.S.-owned foreign assets $31.6 trillion
Value of foreign-owned U.S. assets $24.1 trillion
U.S.’ net debt to the rest of the world $ 7.5 trillion
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 The Connection Between Interest Rates and
r
Exchange Rates
r2
Apa pun yang meningkatkan r
akan mengurangi NCO dan r1
penawaran dolar di pasar valuta
asing. NCO
Hasil: Nilai tukar riil terapresiasi.
NCO
Perlu diingat: Pasar LF (tidak NCO1
NCO2
ditampilkan) menentukan r.
Nilai r ini kemudian menentukan E
S2 S1 = NCO1
NCO (ditunjukkan pada grafik atas).
Nilai NCO ini kemudian E2
menentukan penawaran dolar di
E1
pasar valuta asing (dalam grafik
bawah). D = NX
dollars
NCO
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 Active Learning 3 Investment incentives

Misalkan pemerintah memberikan insentif pajak

baru untuk mendorong investasi.
Gunakan diagram yang sesuai untuk
menentukan bagaimana kebijakan ini akan
mempengaruhi:
• the real interest rate
• net capital outflow
• the real exchange rate
• net exports

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 Active Learning 3 Answers

Investment—and the demand for LF—increase at each

value of r. r rises, causing NCO to fall.
Loanable funds Net capital outflow
r r
S1

r2 r2
r1 r1
D2
D1 NCO
LF NCO
NCO2 NCO1
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 Active Learning 3 Answers
The fall in NCO Market for foreign-
reduces the currency exchange
supply of dollars S2 = NCO2
in the foreign
E S1 = NCO1
exchange market.
E2
The real exchange
rate appreciates, E1

reducing net
exports D = NX

Dollars
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 Budget Deficit
vs. Investment Incentives
• A tax incentive for investment has similar
effects as a budget deficit:
– r rises, NCO falls
– E rises, NX falls
• But one important difference:
– Investment tax incentive increases investment,
which increases productivity growth and living
standards in the long run.
– Budget deficit reduces investment, which
reduces productivity growth and living standards.
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 Trade Policy
• Trade policy:
– Kebijakan pemerintah yang secara langsung
mempengaruhi jumlah barang dan jasa yang
diimpor atau diekspor suatu negara
– Tarif – pajak atas impor
– Kuota impor – batas jumlah impor
 Di kurva pasar mata uang di Demand
– “Pembatasan ekspor sukarela” – pemerintah
menekan negara lain untuk membatasi
ekspornya (pada dasarnya sama dengan kuota
impor).
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 Trade Policy
• Common reasons for policies that restrict
imports:
– Save jobs in a domestic industry that has
difficulty competing with imports
– Reduce the trade deficit
• Do such trade policies accomplish these
goals?

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 Analysis of a Quota on Cars from Japan

An import quota does not affect saving or investment,

so it does not affect NCO. (Recall: NCO = S – I.)

Loanable funds Net capital outflow

r r
S

r1 r1

D NCO
LF NCO
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 Analysis of a Quota on Cars from Japan

Karena NCO tidak berubah,

kurva S tidak bergeser. Market for foreign-
currency exchange
Kurva D bergeser:
Pada setiap E, E S = NCO
impor mobil turun,
shg ekspor neto naik, E2
D bergeser ke kanan.
Pada E1, ada kelebihan E1
permintaan di pasar valuta D2
asing.
D1
E naik untuk mengembalikan
keseimbangan.
Dollars
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 Analysis of a Quota on Cars from Japan
• What happens to NX? Nothing!
– If E could remain at E1, NX would rise, and the
quantity of dollars demanded would rise.
– But the import quota does not affect NCO,
so the quantity of dollars supplied is fixed.
– Since NX must equal NCO, E must rise enough
to keep NX at its original level.
Hence, the policy of restricting imports does
not reduce the trade deficit.

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 Analysis of a Quota on Cars from Japan
Does the policy save jobs?
• The quota reduces imports of Japanese autos
– U.S. consumers buy more U.S. autos.
– U.S. automakers hire more workers to produce
these extra cars.
– So the policy saves jobs in the U.S. auto industry.
• But E rises, reducing foreign demand for U.S.
exports.
– Export industries contract, exporting firms lay off
workers.
The import quota saves jobs in the auto industry but
destroys jobs in U.S. export industries!!
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 Capital Flows from China
• In recent years, China has accumulated
U.S. assets:
– China’s foreign assets: from 2000 to 2012,
increased from $160 billion to $4 trillion
(including U.S. government bonds)
– To reduce its exchange rate and boost its
exports
• Results in U.S.:
– Appreciation of $ relative to Chinese renminbi
– Higher U.S. imports from China
– Larger U.S. trade deficit
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 Political Instability and Capital Flight
• 1994: Political instability in Mexico made world
financial markets nervous.
– People worried about the safety of Mexican assets they
owned
– People sold many of these assets, pulled their capital
out of Mexico
• Capital flight:
– Pengurangan besar dan tiba-tiba dalam permintaan aset
yang berlokasi di suatu negara
– Contoh: bandar narkoba yg menyimpan uang di luar
negeri, korupsi

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Capital Flight from Mexico
Ketika investor asing menjual aset mereka dan menarik modal
mereka, NCO meningkat pada setiap nilai r.
Permintaan LF = I + NCO. Peningkatan NCO meningkatkan
permintaan LF.
Nilai keseimbangan r dan NCO keduanya meningkat.
Loanable funds Net capital outflow
r r
S1

r2 r2
r1 r1
D2 NCO2
D1 NCO1
LF NCO
Banyak dana ke luar negeri, menyebabkan Demand naik dan NCO
bertambah sehingga r naik 34
 Capital Flight from Mexico

Peningkatan NCO
menyebabkan Market for foreign-
peningkatan pasokan currency exchange
peso di pasar valuta E S1 = NCO1
asing. S2 = NCO2
Nilai tukar riil peso jatuh.
E1

E2
D1

Pesos
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 Examples of Capital Flight: Mexico, 1994

0.35
US Dollars per currency unit .

0.30

0.25

0.20

0.15

0.10
10/23/1994

11/12/1994

12/2/1994

12/22/1994

1/11/1995

1/31/1995

2/20/1995

4/1/1995
3/12/1995
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 Examples of Capital Flight: S.E. Asia, 1997

120 South Korea Won

Thai Baht
US Dollars per currency unit.

100 Indonesia Rupiah

80
1/1/1997 = 100

60

40

20

0
12/1/1996

2/24/1997

5/20/1997

8/13/1997

11/6/1997

1/30/1998

4/25/1998

7/19/1998
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 Examples of Capital Flight: Russia, 1998

0.20
US Dollars per currency unit .

0.16

0.12

0.08

0.04

0.00
5/5/1998

9/2/1998

10/12/1998

11/21/1998

12/31/1998
6/14/1998

7/24/1998

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 Examples of Capital Flight: Argentina, 2002

1.2
U.S. Dollars per currency unit .

1.0

0.8

0.6

0.4

0.2

0.0
7/1/2001

12/8/2001

5/17/2002

8/5/2002

10/24/2002
9/19/2001

2/26/2002

1/12/2003
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 ASK THE EXPERTS
Currency Manipulation
“Economic analysis can identify whether
countries are using their exchange rates to
benefit their own people at the expense of
their trading partners’ welfare.”

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 Conclusion
• The U.S. economy is becoming
increasingly open:
– Trade in goods and services is rising
relative to GDP.
– Increasingly, people hold international
assets in their portfolios and firms finance
investment with foreign capital.

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management system for classroom use.
 Conclusion
• Yet, we should be careful not to blame
our problems on the international
economy.
– Our trade deficit is not caused by other
countries’ “unfair” trade practices, but by
our own low saving.
– Stagnant living standards are not caused
by imports, but by low productivity growth.

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 42
management system for classroom use.
 Summary
• Two markets are central to the macroeconomics of
open economies:
• The market for loanable funds: the real interest
rate adjusts to balance the supply of loanable
funds (from S) and the demand for loanable
funds (for I and NCO).
• The market for foreign-currency exchange: the
real exchange rate adjusts to balance the supply
of dollars (from NCO) and the demand for dollars
(for NX).
• NCO - connects these two markets.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 43
management system for classroom use.
 Summary
• A policy that reduces national saving, such as a
government budget deficit, reduces the supply of
loanable funds and drives up the interest rate.
• The higher interest rate reduces net capital
outflow, which reduces the supply of dollars in
the market for foreign-currency exchange.
• The dollar appreciates, and net exports fall.
• When investors change their attitudes about
holding assets of a country: political instability can
lead to capital flight, which tends to increase
interest rates and cause the currency to depreciate.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 44
management system for classroom use.
 Summary
• A trade restriction increases net exports for any
given exchange rate and, therefore, increases the
demand for dollars in the market for foreign-
currency exchange.
• The dollar appreciates in value, making domestic
goods more expensive relative to foreign goods.
This appreciation offsets the initial impact of the
trade restriction on net exports.

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 45
management system for classroom use.