Instructor’s Manual
CHAPTER 16
MACROECONOMIC POLICY IN AN OPEN ECONOMY
CHAPTER OVERVIEW
This chapter conducts a survey of macroeconomic policy in an open economy. International economic policy refers
to various government activities that influence trade patterns among nations, including (1) monetary and fiscal
policies, (2) exchange-rate adjustments, (3) tariff and nontariff trade barriers, (4) foreign-exchange controls and
investment controls, and (5) export-promotion measures.
The chapter notes that since the 1930s, nations have actively pursued internal balance as a primary economic
objective. Nations also consider external balance as an economic objective. A nation realizes overall balance when
it attains internal balance and external balance.
Instructor’s Manual
economic objectives, (2) different national institutions, (3) different national political climates, and (4) different
phases in the business cycle.
After completing the chapter, students should be able to:
• Identify the tools of international economic policy.
• Discuss how nations use expenditure-changing policies and expenditure-switching policies to achieve overall
balance.
BRIEF ANSWERS TO STUDY QUESTIONS
2. International economic policy makes use of expenditure-switching instruments (e.g., import tariffs) and
expenditure-changing instruments (e.g., monetary policy).
3. An expenditure-changing policy refers to a government’s attempt to induce changes in aggregate demand, via
5. Under a system of fixed exchange rates and high capital mobility, an expansionary fiscal policy is more
successful in stimulating the economy, and an expansionary monetary policy is less successful, than it is in a
6. Policy agreement occurs when a given policy can improve two or more economic objectives at the same
