Suppose that the economy that we are interested in modeling is not a small open

Question

Suppose that the economy that we are interested in modeling is not a small open economy, so that the macro variables that describe the external environment have to be treated as endogenous. What additional types of conditions do you think we would have to add to our framework in order to be able to explain the behaviour of these variables? Suppose that the economy that we are interested in modeling is not a small open economy, so that the macro variables that describe the external environment have to be treated as endogenous. What additional types of conditions do you think we would have to add to our framework in order to be able to explain the behaviour of these variables?

Explanation / Answer

A small open economy is considered no effect on the world economy as it is considered to be very small compared to world economy. When modeling of small open econmy four macro variables are considered exogenous. those are

When modeling a large open economy, these variables now become endogenous, additional assumptions are

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