Econ306Lecture5 - International Economics II Lecture Notes...

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International Economics II Lecture Notes 5 Alper Duman July 16, 2009 Alper Duman International Economics II Lecture Notes 5
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The Monetary and Portfolio Approaches to External Balance I The monetary approach to the balance of payments means that the balance of payments should be analyzed in terms of a country’s supply of and demand for money. I If a country has a BOP deficit (an official reserve transaction deficit) then there is an outflow of international reserve assets. An outflow implies that country’s supply of money exceeds its demand for money. Alper Duman International Economics II Lecture Notes 5
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M s = a ( BR + C ) = a ( DR + IR ) (1) where: M s is money supply BR is reserves of commercial banks C is currency held by the nonbank public a is the money multiplier DR is the domestic reserves IR is the international reserves Alper Duman International Economics II Lecture Notes 5
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I The money multiplier reflects the process of multiple expansion of bank deposits, (1/r) where r is the reserve
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This note was uploaded on 08/06/2009 for the course ECONOMICS ECON305 taught by Professor Alperduman during the Spring '09 term at Izmir University of Economics.

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Econ306Lecture5 - International Economics II Lecture Notes...

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