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28 Cards in this Set
- Front
- Back
What is the balance of payments? |
Summary of transactions between domestic and foreign residents for a specific country over a period of time.
-transactions by businesses, individuals and government.
-current account & capital account. |
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What is the current account? |
A summary of the flow of funds between one specified country and all other countries due to the purchases of goods or services. |
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What does the current account include? |
-Payment for merchandise and services (exports minus imports) -Factor income payments (income from investors on foreign investments and securities) -Transfer payments (aid, grants and gifts from one country to another). |
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What is the capital account? |
represents a summary of the flow of funds resulting from the sale of assets between one specified country and all other countries over a period time. |
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What does the capital account include? |
-Direct Foreign Investment -Portfolio Investment (transactions involving stocks and bonds) -Other Capital Investment (transactions involving money market securities) |
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What is the balance of payment equation? |
Current Account + Financial Account + Capital Account=0.
Any current account deficit must be matched by an equal surplus in the other accounts. |
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What is the relationship of inflows and outflows of funds for a country's balance of trade? |
Inflows of funds: positive numbers (credits) Outflows of funds: negative numbers (debits) |
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What is the national income identity in an open economy? |
ca = Y - ( C + I + G )
net exports= output- domestic spending
ca= EX-IM |
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If ca (net exports) > 0, .....? |
Trade Surplus |
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If ca (net exports) < 0, .....? |
Trade Deficit |
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In an open economy: |
1. Domestic Spending need not equal output 2. Saving need not equal investment. |
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In a closed economy: |
Saving equals investment. |
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When S>I... ? |
Net Lender |
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When S<I...? |
Net Borrower |
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What is intertemporal trade? |
-A country with a current account deficit is importing present consumption and exporting future consumption.
-A country with a current account surplus is exporting present consumption and importing future consumption. |
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What are some events that increased International Trade? |
1) Removal of the Berlin Wall (1989) 2) Single European Act (1980s) 3) Inception of the Euro and Expansion of the European Union (2001) 4) NAFTA 5) GATT |
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What was the Removal of the Berlin Wall? |
1989:
-free enterprise in all Eastern Europe -privatization of businesses owned by the government. |
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What was the Single European Act? |
1980s:
Industrialized countries in Europe" -regulations for more uniform -remove taxes on goods traded between countries |
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What was the Inception of the Euro? |
2001
European countries no longer faced the costs and risks associated with converting one currency to another. |
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What is NAFTA? |
1993
North America Free Trade Agreement
-trade barriers between the US and Mexico were eliminated. |
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What is GATT? |
General Agreement on Tariffs and Trade
-reduction or elimination of trade restrictions on specified imported goods over 10 year period in 117 countries. |
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What are factors that affect international trade flows? |
1) Inflation 2) National Income 3) Government policies 4) Exchange Rates
*Impact of some can be offset by others* |
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What are factors affecting DFI? |
1) Changes in restrictions 2) Privatization 3) Potential Economic Growth 4) Tax Rates 5) Exchange Rates |
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What are factors affecting Portfolio Investment? |
1) Tax Rates on interest of dividends 2) Interest Rates 3) Exchange Rates |
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What is the impact of the international flow of funds on US interest rates and business investment? |
1) Interest Rates would be lower 2) Lower cost of borrowing 3) More business opportunities that deserve to be funded. |
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What is IMF? |
International Monetary Fund:
goal was to assist in the reconstruction of the world's international payment system post WWII. |
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What is IBRD? |
World Bank:
Aims to reduce poverty in middle income countries and poorer countries (ex: loans). |
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What is WTO? |
World Trade Organization
provide a forum for multilateral trade negotiation and to settle trade disputes. |