EC1101E

Opportunity Cost
• Whatever must be given up when a choice is made
𝑂𝑝𝑝𝑜𝑟𝑡𝑢𝑛𝑖𝑡𝑦 𝐶𝑜𝑠𝑡 = 𝐸𝑥𝑝𝑙𝑖𝑐𝑡 𝐶𝑜𝑠𝑡 + 𝐼𝑚𝑝𝑙𝑖𝑐𝑖𝑡 𝐶𝑜𝑠𝑡
Production Possibility Frontier
• Concave shape : Opp. Cost is increasing
• Outward shift of PPF : Economic Growth

Comparative Advantage Absolute Advantage

• Opportunity Cost is the lowest • Most output produced given a fixed
• Gains of trade when we specialise input
goods with lower opportunity cost
and trade

Demand [Willingness to Pay (WTP)] Supply [Willingness to Sell (WTS)]

Law of Demand : 𝑃 ↑ 𝑄𝑑 ↓ Law of Supply : 𝑃 ↑ 𝑄𝑠 ↑

Factors Affecting DD (Shift in DD) Factors Affecting SS (Shift in SS)

1. No. of buyers 1. No. of sellers
2. Income 2. Input Price (cost of production)
3. Price of related goods 3. Technology (Lowers COP)
a. Substitutes 4. Weather
b. Complements 5. Expectations
4. Taste & preferences
5. Expectations

Equilibrium (𝑸𝒅 = 𝑸𝒔)

Elasticity
PED / PES XED YED
% ∆ 𝑖𝑛 𝑄𝑑 % ∆ 𝑖𝑛 𝑄𝑑 𝑜𝑓 𝑔𝑜𝑜𝑑 1 % ∆ 𝑖𝑛 𝑄𝑑
𝑃𝐸𝐷 = 𝑋𝐸𝐷 = 𝑌𝐸𝐷 =
% ∆ 𝑖𝑛 𝑃 % ∆ 𝑖𝑛 𝑃 𝑜𝑓 𝑔𝑜𝑜𝑑 2 % ∆ 𝑖𝑛 𝑌
% ∆ 𝑖𝑛 𝑄𝑠
𝑃𝐸𝑆 =
% ∆ 𝑖𝑛 𝑃 XED YED
• E Shape – Elastic XED > 0 : Substitutes YED > 0 : Normal Goods
• I Shape – Inelastic XED < 0 : Complements YED < 0 : Inferior Goods

PED: Always negative

(Take the absolute value)
PED < 1 : Inelastic DD
PD > 1 : Elastic DD

PED Factors:
1. Broadly or narrowly
good is defined
2. Necessity vs Luxury
3. Availability of Close
substitutes
4. How expensive of
the good
5. Long Run vs Short
Run

Total Revenue
𝑻𝑹 = 𝑷 × 𝑸
Raise P when inelastic
Lower P when elastic

PES Factors :
1. Easiness of sellers
to change Q
2. Long Run vs Short
Run
USE MIDPOINT THEOREM
Consumer Surplus, Producer Surplus
CS PS
𝐶𝑆 = 𝑊𝑇𝑃 − 𝑃 𝑃𝑆 = 𝑃 − 𝐶𝑜𝑠𝑡

P or Q dominates the effect?

𝑇𝑅 = 𝑃 × 𝑄
Suppose that 𝑇𝑅 ↑ due to P ↑
↑ 𝑇𝑅 = ↑↑ 𝑃 × ↓ 𝑄
The fall in Q is insignificant → PED Inelastic
Price Ceiling, Price Floor
• Look from the equilibrium point
(Non-binding : Ceiling usually above and floor usually below)

Binding Price Ceiling, Price Floor

Price Ceiling Price Floor
• Maximum price to protect buyers • Minimum price to protect sellers

Effects of CS, PS, DWL Effects of CS, PS, DWL

Evolution of Black Market from Price Ceiling

Tax & Subsidy

Tax Subsidy

• Result in loss of beneficial trade (DWL) • Result in loss of wastefull trade (DWL)

Incidence of tax/subsidies depends on the DD & SS relative elasticity (Draw it out)

Example : DD more elastic than SS

Incidence of tax
greater on sellers
than buyers
Coase Theorem
• Determine who has the property rights
• Efficient outcome when Benefit > Cost
Example:
Alex values $50 of peace and Betty values $100 of music.
Coase Theorem Betty
WTP $100 Benefit ($100)
Betty can pay Alex > $50
Benefit ($50)
Music
Alex
Alex can’t pay Betty ($50 < $100)
WTP $50
Music

Characteristics of a Good
Rival Not Rival
Excludable Private Good Natural Monopoly
Not Excludable Common Resources Public Good

- Public Goods
o Free riders problem → No provision → Govt. has to provide
- Common Resources
o Non Excludable → Tragedy of Common Good (Overconsumption) → Instil
property rights
Profit Maximising (occurs at MR = MC)
𝜋 = 𝑇𝑅 − 𝑇𝐶
Revenue Cost
𝑇𝑅 = 𝑃 × 𝑄
𝑑 𝑑
𝑀𝑅 = 𝑇𝑅 𝑀𝐶 = 𝑇𝐶
𝑑𝑄 𝑑𝑄
𝑇𝑅 𝑇𝐶
𝐴𝑅 = =𝑃 𝐴𝑇𝐶 =
𝑄 𝑄
Perfect Competition
• Every buyers and sellers are price takers
• P = MR

Association of ATC and MC

• MC > ATC → ATC ↑
• MC < ATC → ATC ↓

Monopoly
• Sellers are price makers (1 product with no close substitutes)
• Charge as high as what consumers are WTP (𝑃∗ ) [Produce at MR = MC]
Price Discrimination
• Selling different prices to different buyers

Market Structure
Perfect Monopolistic Oligopoly Monopoly
Competition Competition
No. of sellers Many Many Few One
Free entry/exit Yes Yes No No
LR economic 𝜋 0 0 >0 >0
Market power None; price Yes Yes Yes
taker
Products Identical Differentiated Unique Unique
P 𝑃𝑚𝑜𝑛𝑜𝑝𝑜𝑙𝑦 > 𝑃𝑚𝑜𝑛𝑜𝑝𝑜𝑙𝑖𝑠𝑡𝑖𝑐 𝑐𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑖𝑜𝑛 > 𝑃𝑐𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑖𝑜𝑛
Q 𝑄𝑚𝑜𝑛𝑜𝑝𝑜𝑙𝑦 < 𝑄𝑚𝑜𝑛𝑜𝑝𝑜𝑙𝑖𝑠𝑡𝑖𝑐 𝑐𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑖𝑜𝑛 < 𝑄𝑐𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑖𝑜𝑛

Oligopoly & Game Theory

Nash Equilibrium : Situation which a players interact with one another each choose his
best strategy given the strategies that all the other have chosen
Dominant Strategy : Strategy that is best for a player regardless of all other decisions
made by other players
Prisoner’s dilemma : Game between 2 captured criminals that illustrate why
cooperation is difficult even when it is mutually beneficial
• Protect self-interest first, ability to collude allows better decision making for both
parties
• E.g: Ad wars, Organisation of Petroleum Exporting Countries, Common Resources
• Disadvantage for oligopoly firms : Prevented from achieving monopoly profit
• Advantage for society : Q closer to 𝑄𝑠 and P closer to MC
Cooperation : Firms can choose to cooperate to acts as a monopoly but problems arise
• Grim Strategy : If rival cheats in one rounds, then you cheat in all rounds
• Tit-for-tat Strategy : Whatever your rivals does in one round, you follow

Guided Example
Air Asia and Scoot are planning to increase their total revenue through cutting fares or
leaving fares along. The following information is presented.
• When both cut fares, profit is $400m each
• When none of them cut fares, profit is $600m each
• When one of them cut fares, profit of the one who cut is $800m while the other is
$200m

Game Matrix :
Air Asia
Cut Leave
$400m $200m
Cut
$400m $800m
Scoot
$800m $600m
Leave
$200m $600m

Nash equilibrium : Both cut fares and earn profit of $400m

Macroeconomics

GOAL 1 : HIGH & SUSTAINED ECONOMIC GROWTH

• Indicator : Real GDP per capital

Gross Domestic Product (GDP)

Total value of all final goods and services produced in an economy in a given period,
usually one year
What’s not counted in GDP?
• Underground economy (higher in developing countries)
• Home Production
• Intermediate goods

Stock vs Flow variable

• Stock : measured at a point in time
• Flow : measured over a period of time (e.g GDP)

Expenditure Method
GDP = C + I + G + (X-M)

Income Method (Factor Payment)

• Output = Income
GDP = Wages + Interests + Rents + Profit

Value Added Method

GDP = Sum of firm’s value added
Nominal GDP vs Real GDP
• Nominal GDP : GDP at current prices (not adjusted for inflation)
• Real GDP : GDP at constant prices (choose a base year prices to compute)

GDP Deflator
• Measures the price level of G&S in GDP
𝑵𝒐𝒎𝒊𝒏𝒂𝒍 𝑮𝑫𝑷
𝑮𝑫𝑷 = 𝟏𝟎𝟎 ×
𝑹𝒆𝒂𝒍 𝑮𝑫𝑷

Association of GDP to Standard of Living (SOL)

• Higher GDP per capital → More G&S can be purchased → Increase individual
welfare
GOAL 2: PRICE STABILITY

• Indicator : CPI

Consumer Price Index (CPI) (Basket of goods predetermined)

• Growth can be attributed to higher price due to inflation
• GDP deflator not suitable to measure prices that household faces

𝑪𝒐𝒔𝒕 𝒐𝒇 𝒎𝒂𝒓𝒌𝒆𝒕 𝒃𝒂𝒔𝒌𝒆𝒕 𝒊𝒏 𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒚𝒆𝒂𝒓 𝒑𝒓𝒊𝒄𝒆𝒔

𝑪𝑷𝑰 (𝑪𝒖𝒓𝒓𝒆𝒏𝒕) = 𝟏𝟎𝟎 ×
𝑪𝒐𝒔𝒕 𝒐𝒇 𝒎𝒂𝒓𝒌𝒆𝒕 𝒃𝒂𝒔𝒌𝒆𝒕 𝒊𝒏 𝒃𝒂𝒔𝒆 𝒚𝒆𝒂𝒓 𝒑𝒓𝒊𝒄𝒆𝒔

Real Value
𝟏𝟎𝟎
𝑹𝒆𝒂𝒍 𝑽𝒂𝒍𝒖𝒆 = 𝑵𝒐𝒎𝒊𝒏𝒂𝒍 𝒗𝒂𝒍𝒖𝒆 ×
𝑪𝑷𝑰

Real Interest Rate

𝑹𝒆𝒂𝒍 𝒊/𝒓 ≈ 𝑵𝒐𝒎𝒊𝒏𝒂𝒍 𝒊/𝒓 − 𝒊𝒏𝒇𝒍𝒂𝒕𝒊𝒐𝒏 𝒓𝒂𝒕𝒆
𝟏+𝒊
𝟏+𝒓=
𝟏+𝝅

Indexation (Correcting Inflation for borrowers & lenders)

• Actual inflation more than expected → Lenders receive less real i/r → Distribute p.p
𝑹𝒆𝒂𝒍 𝒊/𝒓 + 𝑪𝑷𝑰 𝒊𝒏𝒇𝒍𝒂𝒕𝒊𝒐𝒏 𝒓𝒂𝒕𝒆

Problems with Inflation

High Inflation Rate
• Menu Cost : Sellers changing
prices more often
• Shoe Leather Cost : Costs
incurred to reduce money holdings
Deflation
• Anticipating lower prices → Hold
current consumption → Worsen
Recession (Self-fulfilling prophecy)
• Harder to pay off debt (Debt still
remains at the same level so need
to pay more than expected)
Problems with CPI
Substitution Bias Quantity is new year changes but basket is fixed at the
same quantity
Outlet Bias Changes to cheaper discount outlets
Quality Change Bias Ignore changes in quality → Lower C.O.P → Not reflected
New Goods Bias Basket is fixed with commonly used G&S and exclude new
goods → Effects of Prices do not show in CPI

GOAL 3: LOW UNEMPLOYMENT

• Indicator : Unemployment Rate

Types of Unemployment
Cyclical Changes due to business cycle

Full employment / “natural” rate of unemployment : 0

Cyclical unemployment
(Output is known as the potential output)
Structural Caused by structural factors
• Skills Mismatch
• Geographical mismatch
• Impediments to labour market (Barriers of
entry/policies) e.g discrimination, high min wage,
unionisation
Frictional In between jobs or just entering market (e.g better offers)
Seasonal Seasonal changes which is short term and predictable
Long Run Macroeconomics
Rule of 70
𝟕𝟎
𝑻𝒊𝒎𝒆 𝒕𝒐 𝒅𝒐𝒖𝒃𝒍𝒆 ≈
𝒈𝒓𝒐𝒘𝒕𝒉 𝒓𝒂𝒕𝒆
Growth Equation
𝑅𝐺𝐷𝑃 𝑇𝑜𝑡𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 = × ×
𝑇𝑜𝑡𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛

𝒈𝒓𝒆𝒂𝒍 𝑮𝑫𝑷 𝒑𝒆𝒓 𝒄𝒂𝒑𝒊𝒕𝒂 ≈ 𝒈𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 + 𝒈𝑨𝒗𝒈.𝑯𝒓 + 𝒈𝑬𝑷𝑹

• Not sustainable for 𝑔𝐴𝑣𝑔.𝐻𝑟 & 𝑔𝐸𝑃𝑅
o ↑ Labour SS → ↓ Real wages
Growth Conditions
Institutional Classical
• Rule of Law – private property rights Economy’s potential output
• Market Orientation over Central Planning • Aggregat production function
(Pitfalls such as externalities need to be • Labour market
considered) • Loanable funds market
• Openness – trade, ideas, and FDIs • Assumption that market
• Stability – Political + Macroeconomics clears

Aggregate Production Function

𝑌 = 𝑓(𝐿, 𝐾, Land, 𝐴)

• Diminishing returns to labour and capital

Productivity Function
𝑌 𝐾 𝐻
= 𝑓 ( , , 𝐴)
𝐿 𝐿 𝐿
Capital Deepening : Physical capital & Human Capital
𝑲 Human Capital
𝑳
Net Investment = Gross Investment - Depreciation Improvement to health, skills,
𝐾𝑡+1 − 𝐾𝑡 = 𝐼𝑡 + 𝐺𝐼,𝑡 − 𝛿𝐾𝑡 discipline & knowledge of
Policies favouring workers
• Lower tax
• Increase Savings
• Reduce current consumption, Higher potential Growth
• Consider diminishing returns to capital (↑ 𝐾 → ↑ 𝛿 →↑ 𝐼)
Technology Changes
• Discovery-based growth
→ Consider policies to establish and protect intellectual rights (e.g patents -
invention & copyrights – own works)
→ Promote entrepreneurship and govt. funding in R&D

• Catch-up growth

Loanable Fund Markets

Equilibrium when S = D
𝒀 − 𝑻 − 𝑪 = 𝑰𝒑 + (𝑮 − 𝑻) or 𝒀 − 𝑻 − 𝑪 + (𝑻 − 𝑮) = 𝑰𝒑
Supply Demand
Savings by consumers Firms borrow from the fund markets
(T) : Net Taxes (tax paid – transfer from govt) 𝐼 = 𝐼 𝑝 + ∆ 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
Y – T : Disposable Y
Y – T – C : Savings (Supply of funds) Determinants :
• ↑ 𝑖/𝑟 → ↓ 𝑖𝑛𝑐𝑒𝑛𝑡𝑖𝑣𝑒 𝑡𝑜 𝑏𝑜𝑟𝑟𝑜𝑤
Determinants : • Expectations of future profit
• ↑ 𝑖/𝑟 → ↑ 𝑖𝑛𝑐𝑒𝑛𝑡𝑖𝑣𝑒 𝑡𝑜 𝑠𝑎𝑣𝑒 (more profits → Less affected
• Expectations of future Y (Higher Y, by i/r)
less need to save)
Govt. may supply or borrow loanable funds
1. Budget Surplus (T-G)
- Supply loanable funds

2. Budget Deficit (G-T)

- Borrow loanable funds
- Insensitive to i/r changes
Says’ Law (∆𝑪 + ∆𝑰 + ∆𝑮 = 𝟎)
- Injections = Withdrawals (Spending adjusts to Output)
- Increase in one component will cause another to decrease by the same amount
(crowding effect)

Economic Fluctuations

Potential Output 𝑌𝐹𝐸 : highest level

of real GDP that can be sustained
in the long run

Boom : 𝑌 ∗ > 𝑌𝐹𝐸

Slump : 𝑌 ∗ < 𝑌𝐹𝐸

Output gap : 𝒀∗ − 𝒀𝑭𝑬

Sticky Wages
During recession, ↓ GDP→ ↓ employment → Wages fall slowly
• Morality & Ethical considerations, Long term contracts
• Fall in Labour Supply but Wages remain (𝐷 ≠ 𝑆 → 𝑀𝑎𝑟𝑘𝑒𝑡 𝑑𝑜𝑒𝑠 𝑛𝑜𝑡 𝑐𝑙𝑒𝑎𝑟)

Classical Model vs Keynesian Model

Classical Model Keynesian Short Run Model
• Say’s Law (100% ↑ spending leads • Market does not clear (𝐷 ≠ 𝑆)
to 100% ↓ ouput) happens in short tun
• Market Clears (𝐷 = 𝑆) happens in • Spending depends on
Long run output(=income) (100% ↑ spending
• Output does not depends on ≠ 100% ↓ ouput)
spending • Output depends on spending
𝟒𝟓° line (Output Y)
• Recall that 𝐼 = 𝐼 𝑝 + ∆ 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠, AE – ‘Spending’
• AE > Y → Inventories ↓ → 𝐼 𝑝 > 𝐼 → Firms ↑ Y

Keynesian Model

Determining Equilibrium Y
• Keynesian Short Run Model : Y = AE
Demand Shock
• Shift in AE line
o Positive : rise in autonomous spending
o Negative : fall in autonomous spending

• Y > AE or Y < AE → Equilibrate to equilibrium (Multiplier Effects take place)

• Main sources of demand shock is 𝐼 𝑝

o Dependent on business sentiments which can be driven by “animal spirits”
o NX is more relevant for small economy

Automatic Stabilizers & Destabilizers

• Automatic stabilizers : Features of the economy that automatically dampen the
spending response in the multiplier process
o Makes the multiplier smaller → Economy more stable in the short run
o Net Taxes (Recession ; RGDP ↓ → Tax ↓ → (𝑌 − 𝑇) ↑ → 𝐶 ↑ which helps
to smoothen the curve)
o Imports (𝑌 ↑ due to C ↑ are not necessarily on domestic production which
𝑌 ↓)
o Welfare payments

• Automatic destabilizers : Features of the economy that automatically strengthen

the spending response in the multiplier process
o Household wealth (Stock prices rise during boom, ↑ 𝑌 due to ↑ 𝑎)
o 𝐼 𝑝 (More optimism during booms)
Money
Financial Market

Balance Sheet

Increasing Money Supply

Bank Failure
• Banks borrow short-term and lend long terms
• Leverage amplifies gains and losses which can result in insolvency (inability to
pay off its liabilities even if it sell all its assets)
• Bank Runs : Suspicion for a bank to be insolvent → Massive withdrawal → Shut
down
• When 1 bank closes, depositors worry about the health of other banks →
Withdrawal → Many bank runs
• Banking Panic : Many banks experience runs and shut down

Policies
- Minimum Risk Ratio
- Minimum Capital Requirements to reduce leverage
- Restricting bank’s activities
- Regular reporting to Central Bank
- Deposit Insurance
o Banks pay premium
o Bank run → Govt. Intervention → Reduce urgency to withdraw
- Central Bank Approach
o Lender of Last Resort : Lend when no one else will
o Owner of Last Resort : Inject capitals into banks
Financial Innovations
• Securitization + Slicing & Dicing

• New ways to borrow short term loans (repo)

Repurchase Agreement (Repo) – Collateral
- Buying same securities at higher prices

• Insurance against securities

Credit Default Swap (CDS)

Shadow Banking
• Non-banks that rely on short term liabilities and purchase long term assets
• Highly leveraged (leverage acts as a cushion for solvency)
• Less regulations than traditional banks (e.g Hedge fund, Mutual fund)

Case Study : Lehman’s Brother 2008/2009

Restoring Financial Stability
• Non-bank access to emergency Fed loans
• Bought securities to raise asset prices
• Induced healthier firms to take over troubled firms
• Injected capital into troubled financial intermediaries

Money Market

Goods & Money Market

• Increase G → Increase AE → ↑ 𝑌 ∗
• ↑ 𝑌 ∗ → ↑ 𝑀𝑑 → ↑ interest rate → ↓ 𝐼 𝑝 , 𝑎 →↓ 𝐴𝐸 → ↓ 𝑌 ∗
• Expenditure multiplier is smaller with money market
• Crowding out effect is present in Keynesian model

Monetary Policy
• 𝑀 𝑠 influence interest rate in the short run → Affects spending and output
• E.g Expansionary Monetary policy
𝑀 𝑠 ↑ → 𝑟 ↓ → ↑ 𝐼 𝑝 , 𝑎 → 𝐴𝐸 ↑ → 𝑌 ∗ ↑
Examples of Target Interest Rate

Unconventional Monetary Policy

Currency Market
Demand & Supply
• Real GDP
• Taste & Preferences
• Relative interest rates
• Relative price level
• Expected future exchange rate

Exchange Rate Movements

Very Short Run Short Run Long Run
• Hot money (funds • Economic • Price level
that can move fluctuations • Inflation rates
from one type of • Exports &
asset to another at Imports Arbitrage
very short notice)
• Interest rates • Buying an item in one market,
• Expectations sell it in another market

Theory of Purchasing Power Parity

(PPP)
• A.k.a Real exchange rate
• Depreciate/appreciates until
both countries charge the same
price
𝑃𝑟𝑖𝑐𝑒 𝐿𝑒𝑣𝑒𝑙 𝑜𝑓 𝑋
• 𝐸 ∗ = 𝑃𝑟𝑖𝑐𝑒 𝐿𝑒𝑣𝑒𝑙 𝑜𝑓 𝑌

Obstacles to PPP Theory

• Transaction costs not zero
• Most g&s non-tradeable
• Trade barriers
• Other determinants of exchange
rate

Systems of Exchange Rate

Flexible (Floating) Fixed Managed
• No government • Government • Mixed of both
intervention intervening by flexible and fixed
selling or buying
currencies
Reasons for Managed or Fix Exchange Rate
1. Appreciation → Country A’s Exports goods more expensive → ↓ 𝑋𝐴
2. Depreciation → Country B’s imports more expensive → Cannot afford to buy
3. Reduce risk for doing international business transactions
4. Pegging one’s currency to USD ties one’s monetary policy to the FED

Monetary Policy : Exchange Rate

• Preventing Appreciation

• Preventing Depreciation

Alternatives when Running out of Foreign Exchange Reserves to Prevent

Depreciation
• Allow currency to float
• Devaluate to a sustainable level
• Impose capital controls to disallow outflow of hot money
• Borrow money from IMF but costly and there’s stringent conditions
Interactions
• Exchange rate can cause demand shock
$ appreciates → Price of M cheaper → 𝑀 ↑ → (𝑋 − 𝑀) ↓ → 𝐴𝐸 ↓ → 𝑌 ∗ ↓

• Monetary policy & currency rate

The Impossible Trinity

Trade Balance
• Trade Surplus = (X-M) > 0, Trade Deficit = (M-X) >0
• Trade Deficit = Net Financial Inflow
𝐾
• Net financial inflow is useful for 𝐿 since this supply finds into the loanable funds
market of an open economy
o Persistent net financial inflow not sustainable → Financial Crisis