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Grade 9-12
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Lesson

AP Macroeconomics – Net Exports and Capital Flows

Updated: November 15 2016,
Author: Margaret Ray

This lesson supports the Open Economy: International Trade and Finance section of the Advanced Placement Macroeconomics course. This lesson introduces net capital flows and examines their effect on the macroeconomy through the loanable funds market.

This lesson appears as Lesson 5, Unit 7: Open Economy: International Trade and Finance in CEE’s Advanced Placement Macroeconomics (4th Edition).

Introduction

In this lesson from Advanced Placement Economics (4th Edition), students examine the effect of net capital flows on the macroeconomy through the loanable funds market.The loanable funds market is used to analyze capital flows in an economy because financial capital affects the amount of money available for borrowers and shifts the supply curve for loanable funds. Students also graph and explain how changes in the current account and balance of trade affect the foreign exchange market.

Bell Ringer: Tell students to pretend they are visiting a foreign country and have arrived with only U.S. dollars. Ask them if they would want the dollar to appreciate or depreciate? Why?

Learning Objectives

  • Define capital inflow and outflow.
  • Graph and explain how changes in the current account and balance of trade affect the foreign exchange market.
  • Use a graph of the loanable funds market to analyze the effect of capital flows on the real
    interest rate.

Resource List

Process

Please refer to the Net Exports and Capital Flows, Teacher Lesson

Conclusion

Not available for this lesson.

Extension Activity

Not available for this lesson.

Assessment

Please refer to the Net Exports and Capital Flows, Student Resoure Manual.

Subjects:
AP/IB Economics