Section 16.3: Macroeconomic Effects of Exchange Rates
Section 16.4: Exchange Rate Policies
Principles of Macroeconomics 2e
Chapter 16: Introduction to Exchange Rates and International Capital Flows
Section 16.1: How the Foreign Exchange Market Works
Section 10.4: The National Saving and Investment Identity
Chapter 10: Introduction to the International Trade and Capital Flows
Section 10.1: Measuring Trade Balances
Section 10.3: Trade Balances and Flows of Financial Capital
Section 10.5: The Pros and Cons of Trade Deficits and Surpluses
Section 19.5: Balance of Trade Concerns
Section 17.6: Practical Problems with Discretionary Fiscal Policy
Section 18.1: How Government Borrowing Affects Investment and the Trade Balance
National Income and the Balance of Payments Accounts
Foreign Exchange Markets and Rates of Return
International Monetary Fund
IMF Public Data Set
Open Source Exchange Rate Calculator
Open Economy: Course Map & Recommended Resources
This category covers a lot of material. Multiple chapters are included from the main resource. Individual instructors might consider breaking this down into smaller subcategories, or tying individual objectives to other categories; for example, LO2 might be covered in monetary policy, and LO 3 might be covered in discussion of the AD/AS model.
- Demonstrate the relationship between currencies in the foreign exchange market (15)
Demonstrate the relationship between changes in the interest rate and exchange rates
Understand and demonstrate the impact of exchange rates on the AD/AS model (8)
Define the relationship between savings and investment in the open economy (15)
Explain how the balance of payments is calculated (15)
Compare the effectiveness of monetary policy vs. fiscal policy in the open economy (9)
Compare different exchange rate systems (15)
Discuss the role of international finance in the global economy (16)
NOTE: This Module meets Ohio TAG's 8, 9, 15, 16 for an Intro to Macroeconomics Course
Recommended Textbook Resources
Principles of Macroeconomics 2e: OpenStax CNX. Jun 4, 2018.
Two main chapters provide coverage of the learning objectives included in this unit: Chapter 16 on Exchange Rates and International Capital Flows, and Chapter 10 on International Trade and Capital Flows. Specifics are provided below.
Chapter 16, 16.1-16.2 cover LO1.
Section 16.2 covers LO2 in a section entitled “Differences Across Countries in Rates of Return”.
Section 16.3 covers LO3.
Section 16.4 covers LO7.
The open economy relationship between savings and investment (LO4) is provided in Chapter 10, Section 10.4, but should be preceded by other sections within Chapter 10.
The balance of payments (LO5) is covered in 10.3, but should be preceded by the earlier sections of Chapter 10. This book focuses on the current account, and offers the balance of trade as the equivalent of the balance of payments. Instructors might prefer supplementary resources for this topic.
LO8 is briefly covered in 10.5, and is also mentioned in 19.5.
LO6 is not covered completely by the primary or secondary texts for this course shell. Chapter 17, Section 6, discusses the interactions between fiscal policy and monetary policy regarding interest rates, and that can be tied into exchange rate markets.
The impact of fiscal policy on net exports is covered in 18.1.
Supplemental Content/Alternative Resources
For more detailed information on the balance of payments, see National Income and the Balance of Payments Accounts.
For additional coverage of exchange rates, see Foreign Exchange Markets and Rates of Return.
- This comes from Saylor.org Academy in their course on international trade. © Saylor Academy 2010-2018 except as otherwise noted. Excluding course final exams, content authored by Saylor Academy is available under a Creative Commons Attribution 3.0 Unported license.
The International Monetary Fund’s website provides data on balance of payments accounts for individual countries, along with details on measurement.
As a data exercise, the IMF has a public data set that allows students to create graphs using individual country data. The current data set is from 2014, but is freely accessed, and relatively easy to use. An easy exercise is to have students work in small groups to determine a group of countries to compare and contrast.
The direct link for the public data: IMF Public Data Set
The link through the IMF website is under their data visualization tab under research. The entire database is available for download.
Students have the option to look at Balance of Payments data either as a percentage, or in $US. They can then select multiple countries along with the world over time. The External Sector Report from the IMF is a good resource to be used in conjunction with this data exercise for the purpose of understanding some of the major trends in balance of payments.
Active Learning Exercise
This activity can also serve as a data exercise. Students can choose which currency they want to convert from or to. This tool could be used to examine the topic of purchasing power parity. Students could be asked to work through several conversions, starting and ending from the same one; for example $50US to Euros to Indian rupees to Argentine pesos back to US dollars. Do you arrive at $50US? Challenge students to see who can find the biggest discrepancy in moving through a chain of conversions starting and ending with US dollars.
Please note the terms of service: https://www.x-rates.com/terms/