4-8 Conclusion: The Classical Dichotomy 112 the Price The Cagan Model: How Current and Future Money Affec Level 116
Chapter 5 The open Economy 119 s
5.1 The International Flows of Capital and Goods 120 The Role of Net Exports 120 International Capital Flows and the Trade Balance 122 International Flows of Goods and Capital: An Eample 124 FYI The Irrelevance of Bilateral Trade Balances 124
5-2 Saving and Investment in a small open Economy 125 Capital Mobility and the World interest Rate 125 Why Assume a Small Open Economy? 126 The Model 127 How policies influence the Trade Balance 128 Evaluating Economic Policy 131 The US Trade Deficit 131 Why Doesn't Capital Flow to Poor Cou 134
5.3 Exchange Rares 135 Nominal and Real Exchange Rates 13s The Real Exchange Rate and the Trade Balance 137 The Determinants of the Real Exchange Rate 138 How policies influence the Real Exchange Rate 139 The Effects of Trade Policies 141 The Determinants of the Nominal Exchange Rate 143 Inflation and the Nominal Exchange Rate 1 The Special Case of purchasing Power Parity 145 The Big Mac Around the World 147
5-4 Conclusion: The United States as a Large open Economy 149 Appendix: The Large Open Economy 153 Net Capital Outflow 153 The Model 155 Policies in the Large open Economy 157 Conclusion 161
Chapter 6 Unemployment 163
6-1 Job Loss, Job Finding, and the Natural Rate of Unemployment io
6-2 Job search and Frictional Unemployment 166 Causes of Frictional unemployment 167 Public Policy and Frictional Unemployment 167 Unemployment Insurance and the Rate of fob Finding 168
6-3 Real Wage Rigidity and structural Unemployment 169 Minimum wage Laws 170