International Economics; Summary of all lectures and relevant information from the textbook.
Saves a lot of time and contains all information needed to pass the exam!
Grade: 8.5
* GDP: Gross domestic product = Final value of all goods and services produced within a country
* GNP: Gross national product = Value of all goods and services BY a nation’s factor of
production in a given time period
* GDP = GNP - Payments for home factors of production, produced abroad + payments for
foreign factors of production produced at home
National Income:
* Y = C + I + G + CA
* C is consumption, I is investment, G is government spending, CA is Export minus Imports =X-M
* CA is the Current Account (Export — Import)
* Final products not purchased by household, etc. are counted as investments…
* Equilibrium in demand driven model: Supply = Demand —> Y = AD = C+I+G+CA
Alternative representation of national income identity:
* National Income + Imports = Expenditures at home + abroad
* Y + IM = C+I+G+EX
Balance of Trade:
* EX-IM = Net expenditure by foreign individuals and institutions
* CA = EX - IM = Y - (C+I+G)
* If productions is higher than domestic expenditure, this means Exports > Imports
* More exports than imports:
* More income from export than it spends on imports
* Net foreign assets increase (CA Surplus ‘produces’ net foreign wealth (investment))
* When Exports < Imports, Net foreign assets decrease (disinvestment)
Savings and the Current Account:
* S = Y - C - G (income which is not consumed) = I (S = Sg + Sp) (government and private)
* CA = EX - IM = Y - C - G - I = S - I
* This implies: Current Account = National Savings - Investment
* This implies: Current Account = Change in Net Foreign Assets = Net Foreign Investment
* Current Account de cit means a Negative Net Foreign Investment (more out than in)
* CA = S - I = Sp + Sg - I = Sp + ( T - G ) - I = CA (Government de cit higher? Higher CA de cit)
Balance of Payments:
* Flow of all payments between home country and foreign country which includes MONEY
* Usually this Balance of Payments is balanced, but there are some errors (ERR)
* BoP = CA + KA + FA = Current Account + Capital Account + Financial Account
* Each transactions enters as a credit and as a debit
* BoP de cit ===> De cit o cial settlements balance = Losing International Reserves!
Balance of Payments Account:
* For payments to and receipts from foreigners during a certain period
* Involves two parties and enters as a debit and credit
* Double Entry means: Current Account + Capital Account + Financial Account = 0
Current Account (CA):
* Merchandise, Services, Factor Income, Unilateral Transfers
fi fifi ffi fi fi
, Capital Account (KA):
* Special transfer of assets, minor account for most countries
Financial Account (FA):
* Accounts for ows of nancial assets
* = Di erence between sales of domestic assets to foreigners and purchase of foreign asset by us
* Every export (credit) leads to money in ows (debit)
* Every import (debit) leads to money out ows (credit)
Financial Out ows:
* Portfolio investments in shares/bonds — returns
* FDI — Create or expand the market, new production plant for example
Financial Account: Three parts
* O cial Reserves Assets (FA reserve)
* All other assets (FA Non-reserve)
* Statistical discrepancy (ERR)
O cial International Reserves: FA Reserve
* Foreign assets held by Central Bank to cushion against instability (and exchange rates changes)
* Include government bonds, currencies, gold, account at IMF
Foreign Exchange Intervention:
* FED sells Yen ; Credit this item ; Debit $ in ow ; This means depletion of (International) reserves
Balance of Payments (BoP):
* Level of Central Bank nancial ows is called —> ‘’O cial Settlements Balance’’ (=BoP)
* This is equal to: CA, the Non-reserve portion of FA and the statistical discrepancy (ERR)
* BoP = CA + FA (Non-Reserve) + ERR
* BoP = FA (Reserve) —> CA + FA (Non-reserve) + ERR + FA (Reserve) = 0
* This implies: BoP de cit = FA (reserve) surplus —> Reserve increases; more dollars in than out
* This implies: Depleting its o cial international reserve + Strengthen home currency +
Possible large debts against other Central Banks …
O cial Settlements Balance (or BoP):
* Should be 0 under oating exchange rates — Central Bank does not intervene (no changes res.)
Balance of Payments:
* Flow of all transaction between Home and RoW, which includes Money
* CA + FA = ERR —> ERR should be 0, so BoP is balanced…
* BoP De cit = De cit O cial Settlements = FA (Reserve) Surplus = Losing International
Reserves
* Imports > Exports = CA De cit
ffi
ffi ff
fi flfl fi fl fifi ffi fi
ffi fl flfl fl ffi
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller yoel0507. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $4.87. You're not tied to anything after your purchase.
