Econ 161-Lecture 10

Econ 161-Lecture 10 - GlobalIntegrationofLatinAmerica...

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Unformatted text preview: GlobalIntegrationofLatinAmerica Lecture10 c Marc-AndreasMuendler UniversityofCalifornia,SanDiego May5,2011 10.ThePrincipleofComparativeAdvantageinCapitalMarkets Econ161, c M.Muendler InternationalInvestment Internationallyintegratedcapitalmarketspresentgainsandrisks. Anextremeviewinfavorofopenness:Thecaseforfreeinternational capitalmarketsisthesameasthecaseforfreetradebutforthe subscripts Relabelcomputersastodayandrosesastomorrow. Anextremeargumentagainstopenness:Foreigncreditistoounre- liableasourceofcapitaltobeworthwhileattracting Foreigncreditsufferssuddenreversalsdrivenbyinvestorsmoodsratherthanfun- damentals. 10.ThePrincipleofComparativeAdvantageinCapitalMarkets Econ161, c M.Muendler ProductionPossibilitiesOverTime Todaysincomecanbeusedforconsumptionorsavings: GNI: Y GNI today = C + S. Ina closed economy,savingsgotoinvestment: S = I . Ignoringgovernmentconsumptionandsavings. Savingsbuildthedomesticcapitalstock: K tomorrow = I . Tomorrowsincomeisproducedusingtomorrowscapital: GNI: Y GNI tomorrow = F ( I ) . 10.ThePrincipleofComparativeAdvantageinCapitalMarkets Econ161, c M.Muendler InternationalInvestment Thecaseforfreeinternationalcapitalmarketsisthesame asthecaseforfreetradebutforthesubscripts Thetermsoftrade:Theinternationalinterestfactor 1+ r Investing$1yields r tomorrowandpaysbacktheinvesteddollar(principal). Thetradedgoods:Consumptiontodayandconsumptiontomorrow Alendergivesupincometodayforconsumptiontomorrow.Aborrowerreceives extraconsumptiontodayandpaysbackoutofincometomorrow. Theproductionpossibilityfrontier:Transformsinvestment(income today)intofutureconsumption(incometomorrow) 10.ThePrincipleofComparativeAdvantageinCapitalMarkets10....
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This note was uploaded on 08/14/2011 for the course ECON 161 taught by Professor Muendler during the Spring '11 term at San Diego.

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Econ 161-Lecture 10 - GlobalIntegrationofLatinAmerica...

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