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Community College / Lower Division, College / Upper Division
Ohio Open Ed Collaborative
  • Open Economy
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    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.

    Learning Objectives

    1. Demonstrate the relationship between currencies in the foreign exchange market (15)
    2. Demonstrate the relationship between changes in the interest rate and exchange rates

    3. Understand and demonstrate the impact of exchange rates on the AD/AS model (8)

    4. Define the relationship between savings and investment in the open economy (15)

    5. Explain how the balance of payments is calculated (15)

    6. Compare the effectiveness of monetary policy vs. fiscal policy in the open economy (9)

    7. Compare different exchange rate systems (15)

    8. 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.

    Chapter 16: Introduction to Exchange Rates and International Capital Flows

    Section 16.1: How the Foreign Exchange Market Works

    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.

    Section 10.4: The National Saving and Investment Identity

    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.

    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

    LO8 is briefly covered in 10.5, and is also mentioned in 19.5.

    Section 10.5: The Pros and Cons of Trade Deficits and Surpluses

    Section 19.5: Balance of Trade Concerns

    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.

    Section 17.6: Practical Problems with Discretionary Fiscal Policy

    The impact of fiscal policy on net exports is covered in 18.1.

    Section 18.1: How Government Borrowing Affects Investment and the Trade Balance1

    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 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.

    Topic Exercise

    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

    Open Source Exchange Rate Calculator

    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.

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