Open-Economy Macroeconomics. Basic Concepts (Chapter 18). Purpose of Ch 18. Develop the basic concepts macroeconomists use to study open economies (i.e., economies with an international sector) Equivalency of net exports and net capital outflow Concepts of real and nominal exchange rates
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Basic Concepts (Chapter 18)
Real Exchange Rate = Nominal Exchange Rate × Ratio of Price Levels
= e × (P/P*)
Where P* is the foreign price level and P is the domestic price level.
e = P* / P
%e = % + π* - π