1. Chapter Eleven International Linkages

2. 1. The Balance of Payments and Exchange Rates Rates BOP: Definition BOP: Definition Current Account and Capital Account Current Account and Capital Account Accounting Rule Accounting Rule Fixed and Flexible Exchange rates Fixed and Flexible Exchange rates Depreciation and Appreciation Depreciation and Appreciation Devaluation and Revaluation Devaluation and Revaluation

3. Quotation of the Exchange Rate Quotation of the Exchange Rate Real Exchange Rate Real Exchange Rate 2. Current Account & Equilibrium Output Domestic Spending and Spending on Domestic Spending and Spending on Domestic goods Domestic goods Net Exports Net Exports Goods Market Equilibrium Goods Market Equilibrium Repercussion Effects Repercussion Effects

4. 3. Capital account Capital Mobility Capital Mobility BOP and Capital Flows BOP and Capital Flows Policy Dilemmas: Policy Dilemmas: Internal and External Balance Internal and External Balance 4. Mundell-Fleming Model: Perfect Capital Mobility under Fixed FX Rates Mobility under Fixed FX Rates

5. Monetary Expansion Monetary Expansion Fiscal Expansion Fiscal Expansion 5. Perfect Capital Mobility and Flexible Exchange Rates Exchange Rates The Effects of Exchange Rates on AD Effects of an Increase in the Demand for Export Export

6. Effects of Fiscal Expansion and Effects of Fiscal Expansion and Crowding out Crowding out Effects of an Increase in the Money Effects of an Increase in the Money Stock Stock Beggar-Thy-Neighbor Policy and Beggar-Thy-Neighbor Policy and Competitive Depreciation Competitive Depreciation