Eco Text Book

Topics: Monetary policy, Macroeconomics, Central bank / Pages: 357 (89098 words) / Published: Sep 27th, 2012
1
Module 1

FOREIGN TRADE MULTIPLIER
Unit Structure : 1.0 1.1 1.2 1.3 1.4 1.5 Objectives Introduction of Foreign Trade Multiplier Income determination in a multiplier in a closed economy Foreign Trade multiplier in an open economy Foreign Repercussion Introduction of the concepts External and Internal balance and Role of Monetary and Fiscal Policy 1.6 Expenditure Changing policies 1.7 Expenditure Switching policy 1.8 Introduction of Policy Mix 1.9 A case for Monetary and Fiscal Policy Mix 1.10 Meade‟s Model 1.11 Mundell‟s Model 1.12 Mundell-Flemming Model 1.13 Summary 1.14 Questions

1.0 OBJECTIVES
1. 2. To understand the concept of Foreign Trade Multiplier To know the income generation process through multiplier in a closed economy. 3. To know the income generation process through the foreign trade multiplier in an open economy. 4. To study the rate of foreign repercussions on the income generation process through the foreign trade multiplier in an open economy. 5. To understand the concept of External and International balance and Role of Monetary and Fiscal Policy 6. To study Expenditure Changing Policy 7. To study the Expenditure Switching Policy 8. To understand the concept of Policy Mix 9. To study Monetary and Fiscal Policy Mix 10. To study Meade‟s Model 11. To study Mundell‟s Model 12. To study Mundell and Flemming Model 1.1 INTRODUCTION OF FOREIGN TRADE MULTIPLIER:

The original idea of multiplier was given by R. F. Kahn, this multiplier was Employment Multiplier. The Employment Multiplier

Mcom-glob

2

studies the effect of changes in employment on changes in income as per which the changes in income happens to be greater than the initial change in employment. It works through employment multiplier. Algebraically, ∆Y = ke · ΔE ∆Y stands for change in income. Ke stands for Employment Multiplier ∆E stands for initial change in Employment. Lord J. M. Keynes borrowed the idea of his Investment Multiplier from R. F. Kahn‟s Employment

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