4. Open-Economy Macroeconomics

Suppose a country with a high level of unemployment decides to boost demand using expansionary fiscal policy. How would the effects of this be different in an open economy versus a closed economy? What can you say more generally about how open economies might behave differently from closed ones?

Line Current account 1 Exports of goods and services and income receipts (credits) 2 Exports of goods and services 3 Goods A Services 5 Primary income receipts Investment income 7 Compensation of employees 8 Secondary income (current transfer) receipts /1/ 9 Imports of goods and services and income payments (debits) 10 Imports of goods and services 11 Goods 12 Services 13 Primary income payments 14 Investment income 15 Compensation of employees 16 Secondary income (current transfer) payments Capital account 17 Capital transfer receipts and other credits 18 Capital transfer payments and other debits Financial account 19 Net U.S. acquisition of financial assets excluding financial derivatives 20 Direct investment assets 21 Portfolio investment assets 22 Other investment assets 23 Reserve assets 24 Net U.S. incurrence of liabilities excluding financial derivatives 25 Direct investment liabilities 26 Portfolio investment liabilities 27 Other investment liabilities 28 Financial derivatives other than reserves, net transactions Statistical discrepancy