econ434_010808_bop - 1 Economics 442 International Finance...

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Unformatted text preview: 1 Economics 442 International Finance 2 Announcements I have laryngitis. Which means that I have lost my voice. We may have a short class today if my voice gives up altogether Or I start to cough uncontrollably Unfortunately there is no cure for this other than ironically to rest my voice. Thanks for your patience and sorry in advance. 3 Announcements Please put Econ 442 in the title of your email because I teach two classes. If you miss a class, it is your responsibility to check with your classmates about what was covered and how to prepare for the next class. 4 Outline: Statistical description of open economies: National income accounting Balance of payments accounting Roles of international financial markets 5 Description of an open economy National income accounting: records all the expenditures that contribute to a countrys income and output Balance of payments accounting keeps track of both its payments to and its receipts from foreigners. 6 National income accounting Closed economies Output = Income = Total expenditure GDP = NI = C + I + G C: consumption I: investment G: govt expenditure GDP: gross domestic product 7 National Income Accounting Open economies: GDP NI GNP = NI GNP (gross national product): the value of all final goods and services produced by factors of production owned by domestic residents, regardless of where the factors are employed in a given time period 8 National Income Accounting Example: The earning of a Spanish factory with British owners: Which country can count it as GDP? Which country can count it as GNP? 9 National Income Accounting Example: The earning of a Spanish factory with British owners: counted in Spains GDP, not Britains GDP counted in Britains GNP, not Spains GNP 10 GDP and GNP Relationship between GDP and GDP GNP = GDP + R R: net foreign income receipts fees and royalties from direct investment; dividends and interest from portfolio investment; income for labor services 11 Expenditure side GNP = C + I + G + EX IM = GDP + EX IM C : private consumption I: gross investment G: government expenditure EX: export of goods and services IM: import of goods and services 12 Current Account Measures the size of international borrowing CA = EX - IM = GNP - (C + I + G) Current account deficit: spend more than its income Borrow from abroad (run down foreign wealth) Intertemporal trade versus intratemporal trade Importing present consumption and exporting future consumption 13 Current Account- visible and invisible CA = (EX - IM) goods + (EX - IM) services Visible part of the current account tracks trade in goods invisible or intangible part reflects other service flows Banking and transport services Net payments on foreign assets (Receipts on holdings of foreign assets less payments to foreigners on their holdings of home assets) Remittances of workers...
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econ434_010808_bop - 1 Economics 442 International Finance...

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