Question

The open-economy macroeconomic model examines the determination of a. the trade balance and the exchange rate. b. the output growth rate and the inflation rate. c. unemployment and the exchange rate. d. the output growth rate and the real interest rate.

Answer 1

The open-economy macroeconomic model examines the trade balance and the exchange rate. It helps in analyzing the interplay between economic growth, unemployment, inflation, and international trade dynamics.

Step-by-step explanation:

The student has asked about what the open-economy macroeconomic model examines. The correct answer is a. the trade balance and the exchange rate. This model is key in analyzing macroeconomic issues such as the relationship between economic growth and changes in the unemployment rate. Historically, periods of lower unemployment often correlate with higher inflation, as seen from 1997 to 2000, while higher unemployment can coincide with lower inflation, evident in the early 2000s. This inverse relationship is partially explained by the Phillips Curve, a concept suggesting that inflation and unemployment have a stable and inverse short-run relationship. Moreover, understanding the reasons behind changes in the current account deficit, as it significantly rose and then declined in 2009, involves examining international trade and capital flows, where foreign capital influences the alignment of domestic savings with domestic investment.

Answer 2

the trade balance and the exchange rate.

Step-by-step explanation:

Open-economy macroeconomic model is one that studies the open economy where the domestic economy interacts with the external (foreign) economy. It considers trade that colours with other countries and so considers trade balance and exchange rate. This is aimed at maximising satisfaction for the economy. Countries usually focus on goods they have comparative advantage producing and import goods they do not have comparative advantage in.

On the other hand a closed economy does not involve in international btrade with other countries.