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 4: Monetary Policy Basics

Uses of Money: Medium of Exchange Unit of Account Store of Value Types of Money: Commodity money Representative money (IOU’s) Fiat money ($ bc govt says so) Characteristics of Money: Durability Portability Divisibility Uniformity Scarcity Acceptability Money Supply:     M1 Money) cash, coins, currency, traveler’s checks, demand or checkable deposits (largest component)     M2 Money) M1 Money + savings accounts     M3 Money) M2 Money + money market accounts + CDs Liquidity: easy to convert to cash Balance Sheet: summarizes finance decision of a bank at a certain time Liabilities = Assets Liabilities (owe): RR and ER; Assets (own): DD; net worth or owner’s equity Required Reserve + Excess Reserve = Demand Deposit RR: Bank holds a fraction of deposit back as reserve in bank ER: Held by a bank or financial institution in excess of what is required ...
2 comments
Read more

Unit 1

Positive : facts; claims that attempt to describe world as is; very descriptive. Ex: minimum wage laws cause unemployment Normative : opinions; claims that attempt to prescribe how world should be. Ex: government should raise minimum wage Wants : desires of the citizens Needs : basic requirements for survival Scarcity : problem unlimited wants and needs with limited resources; fundamental problem that all societies face Shortage : quantity demanded > quantity supplied Surplus : quantity supplied > quantity demanded Factors of Production : Capital - human: knowledge and skills workers gain through education and experiences // physical: human made objects used to create other goods and services Entrepreneurship - risk taker and innovative Land - natural resources Labor - work exhorted Production Possibilities Graphs (PPG, PPC, PPF): shows alternate ways to use resources, shows most that society can produce if it uses every available resource to bes...
1 comment
Read more

Unit 3: MPC & MPS, Multipliers, Deficits/Surplus/Debt, Fiscal Policy

MPC & MPS: Marginal propensity to consume: delta C / delta DI ; % of every extra dollar earned that is spent Marginal propensity to save: delta S / delta DI ; % of every extra dollar earned that is saved MPC+MPS=1 1-MPC=MPS 1-MPS=MPC Spending Multiplier Effect: initial change spending (C,Ig,G,Xn) causes larger change in aggregate spending or AD Formula: Multiplier = change in ad / change in spending Happens because expenditures and income flow continuously which sets off a spending increase in economy Formula: Multiplier = 1 / 1-MPC or 1 / MPS Multipliers are positive when there's increase in spending and negative when there's decrease Tax Multiplier: when government taxes, multiplier works reverse bc money leaves circular flow Formula: Tax Multiplier = -MPC / 1-MPC or -MPC / MPS if tax cut, multiplier is positive bc more money in circular flow *MPS, MPC, Multipliers: Fiscal Policy: changes in expenditures or tax revenues of federal gov...
1 comment
Read more