Unit 6 of 6

Market Failure and the Role of Government

Unit 6 introduces students to the concept of an open economy in which a country interacts with the rest of the world through both product and financial markets. This unit is often challenging for students because economic activity between nations must be facilitated by currency exchange, which introduces another market to be considered when analyzing macroeconomic situations. Changes in economic activity affect the supply of and demand for a nation’s currency and subsequently the value of that currency. But it is also true that changes in the value of a country’s currency can affect economic activity in that country. In addition to these insights, students have the opportunity in this unit to consider the effects of economic policy on exchange rates and the implications of such changes.