Skip to main content

Unit 7: Balance of Payments

Balance of Payments: Measure of Money inflows and outflows between US and rest if world; inflows referred as “credits” and outflows referred as “debits”
Image result for balance of payments
Balance of Payment divided into 3 accounts:
  1. Current Account: Balance of Trade aka Net Exports, Net Foreign Income aka Net Investment: income earned by US owned by foreign assets, Net Transfers: foreign aid
  1. Capital/Financial Account: Includes purchase above real and financial access (ex: direct investment- in US, debit is credit to capital account; brand factory in area); direct investment by US firms/individuals in a foreign country are debits to capital account; purchase of foreign financial asset reps a debit to capital account (ex: rich buys stock in petral China); purchase of domestic product reps purchase of credit in financial account (ex: Venezuela buys steak from Venezuela); current and capital account should zero each other out; Real asset: real estate, G & Financial asset: stocks or bonds
  1. Official Reserves: foreign currency holdings of US federal reserve bank


every transaction in Balance of Payments is recorded twice

 Equations:
*Balance of Trades = Goods Exports + Goods Imports
*Balance of Goods & Services = Goods Exports + Services Exports - Goods Imports + Services Imports
*Balance on Current Account = Net Exports + Net Investments + Net Transfers
*Capital Account = Foreign Purchases on Assets + US Purchases of Foreign Assets
Foreign Exchange: buying and selling of currency; difference between appreciation and depreciation


Appreciation: increase of value of a country’s currency with respect to a foreign country’s currency; dollar said to be stronger, less units of dollars needed to buy single unit of other currency
Depreciation: loss of value of country’s currency with respect to foreign currency; dollar said to be weaker, more units of dollar is needed to buy single unit of other currency

Image result for appreciation depreciation

Absolute Advantage: producer can produce most output or requires least amount of inputs


Comparative Advantage: producer with lowest opportunity cost


Input: It takes a certain amount of input to get a certain product (ex: apples to make a pie)
Output: certain amount of product out of given input (ex: mph, $1/gum)

Comments

Post a Comment

Popular posts from this blog

Unit 2

Real GDP: Price x Quantity ; value of output produced in constant based year prices that is adjusted for inflation. Can increase from year to year only if output increases. Nominal GDP: Price x Quantity ; value of output produced in current year prices. Can increase from year to year if either prices or output increases In the base year, current prices is equal to base year (constant) prices In years after the base year, nominal GDP exceeds real GDP In years before the base year, real GDP exceeds nominal GDP GDP Inflator: a price index used to adjust from nominal to real GDP In the base year, the GDP deflator = 100 For years after the base year, GDP Deflator > 100 For years before the base year, GDP Deflator < 100 Deflator Formula: new-old/old GDP Deflator = (nominal GDP/real GDP x 100) Inflation: a general rise in the price level (new[price index]-old[price index] /old x 100) will result in percentage Consumer Price Index: measures cost of ...
1 comment
Read more

Unit 4: Monetary Creation Process

Money Creation Process: (assume 10% required reserves) $1000 cash deposited in checking account => no immediate change in MS => Assets // reserves $1000 $1000 FED purchase of bonds from public (deposited into checking account) => immediate increase in MS of $1000 => Liabilities // demand deposits $1000 RR = $100 (.10 x 1000 deposit) Single Bank: of Money in single bank can create (loan out) = ER Actual Reserves-Required Reserves=Excess Reserves; $1000-$100=$900 in ER Banking System: create money by multiple of initial ER; monetary multitude=1/RR=1/.1=10 System New Money=deposit multiplier x initial excess reserves; 10 x $900 = $9000 Total change in MS as result of deposit; initial deposit of right now + Banking system = total change; $1000+$900=> $10000
Post a Comment
Read more