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Summary ECO3024F LECTURE SUMMARIES

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  • Course
  • ECO3024F
  • Institution
  • University Of Cape Town (UCT)

This is not a simple course. In this document, I have summarized the entire course material as well as provided small additional information to help you further your understanding and score higher on tests and exams. I highly recommend printing and binding these notes, then taking them to lectures ...

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Document information

  • October 26, 2022
  • 178
  • 2022/2023
  • Summary

Subjects

  • eco3024f
  • heckscher ohlin model
  • balance of payments
  • aa dd curve
  • international trade and finance

Written for

  • University of Cape Town (UCT)
  • ECO3024F
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Just the lecture slides, not worth the money

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UNIVERSITY OF CAPE TOWN

DEPARTMENT OF ECONOMICS

ECO3024F: INTERNATIONAL TRADE AND FINANCE


2022 SUMMARIES




AUTHORED BY: JASON ALPERSTEIN (ALPJAS001)

,LECTURE NOTES - WEEK 1

CHAPTER 13: NATIONAL INCOME ACCOUNTING & THE BALANCE OF
PAYMENTS (BOP)
BALANCE OF PAYMENTS

→ The Balance of Payments (BOP) is a statement that records all monetary transactions between
residents of a country and the rest of the world over a given time period

→ Individuals, firms, governments, and government agencies in the reporting/foreign country are
considered residents

→ The BOP's main purpose is to assist the government in developing monetary, fiscal, and trade
policies

Credit transactions (+):

→ Transactions involving the payment of funds from foreign sources

→ Examples: Exports of goods and services, as well as unilateral transfers (gifts or donations)
from foreigners and foreign investment in this country's government bonds/companies

Debit transactions (-):

→ Transactions in which funds are paid to foreign sources

→ Examples: Imports of goods and services, as well as unilateral transfers (gifts or donations) to
foreigners and foreign investment in foreign government bonds/companies


The BOP consists of:

1. Current Account

2. Financial account

3. Capital Transfer Account

4. Unrecorded transactions


1. Current Account

→ Visible trade: Net export and import of goods (tangible items). Purchases of raw materials,
intermediate and finished goods are examples of transactions.

→ Invisible trade: Net export and import of goods (intangible items). Transactions primarily
consists of shipping, IT, banking, and insurance services.

→ Unilateral transfers to and from abroad: Gifts or donations sent by a non-resident relative to a
resident of a country

→ Income receipts and payments: Income earned by South Africans living in other parts of the
world. Rent on property, interest on capital, and investment profits are some examples.

,LECTURE NOTES - WEEK 1

→ Trade deficit: Imports Exports

→ Trade surplus: Imports Exports

→ Current account Net foreign investment

Current account surplus:

→ A country's foreign assets are growing faster than its foreign liabilities

→ Net foreign investment is positive

→ Net lender to Rest of the World (RoW)

→ Stimulates domestic production and income


Current account deficit:

→ A country's foreign liabilities are growing faster than its foreign assets

→ Net foreign investment is negative

→ Net borrower from Rest of the World (RoW)

→ Dampens domestic production and income


2. Capital Transfer Account

→ Separate item reflecting capital transfers payments (typically non-market, non- produced, or
intangible assets like debt forgiveness, copyrights and trademarks)


3. Financial Account

→ Records all financial asset and liability transactions (flows of financial assets)

→ Three main components: Direct investment, portfolio investment and other investment

→ Direct investment: Includes transactions involving the acquisition of share capital in foreign
countries through the establishment of new businesses or through mergers and takeovers

→ Portfolio investment: The purchase of assets such as stocks or bonds by foreigners and South
Africans in South Africa and abroad

→ Other investment: Includes trade credits, loans, currency and deposits, as well as other assets
and liabilities

Financial account inflow:

→ Foreigners make loans to domestic residents by purchasing domestic assets

→ Because the domestic economy gains money as a result of the transaction, domestic assets
sold to foreigners are a credit (+)

, LECTURE NOTES - WEEK 1

Financial account outflow:

→ Domestic citizens lend to foreigners by acquiring foreign assets

→ Because the domestic economy loses money during the transaction, foreign
assets purchased by domestic citizens are a debit (–)


THE NATIONAL INCOME ACCOUNTS

→ Records the value of national income that results from production and
expenditure

→ Gross Domestic product (GDP) is the value of all final goods and services
produced within a country in a given period

→ Gross national product (GNP) is the value of all final goods and services
produced by a nation’s factors of production in a given time period

→ GDP GNP (factor payments from foreign countries) (factor payments to
foreign countries)

→ Net national product (NNP) GNP (depreciation) (unilateral transfers)
(indirect business taxes)

GNP is calculated by adding the value of expenditure on final goods and services
produced:

→ Consumption: Expenditure by domestic consumers

→ Investment: Expenditure by firms on buildings & equipment

→ Government purchases: Expenditure by governments on goods and services

→ Current account balance (exports minus imports): Net expenditure by
foreigners on domestic goods and services

When production domestic expenditure, exports imports:

→ Current account 0 and trade balance 0

→ When a country exports more than it imports, it earns more income from
exports than it spends on imports

→ Net foreign wealth is increasing

When production domestic expenditure, exports imports:

→ Current account 0 and trade balance 0

→ When a country imports more than it exports, it earns less income from
exports than it spends on imports

→ Net foreign wealth is decreasing

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