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Unformatted text preview: International Econ Study Guide Chapter 12: Exchange Rates and Open-Economy Macroeconomics International macroeconomics is concerned with the full employment of scarce economic resources and price level stability throughout the world economy. Because they reflect national expenditure patterns and their international repercussions, the national income accounts and the balance of payments accounts are essential tools for studying the macroeconomics of open, interdependent economies. o National income: records national income that results from production and expenditure; income earned by a countrys factors of production The amount of expenditure by buyers = the amount of income for sellers/producers = the value of production A countrys GNP = income received by its factors of production. The national income accounts divide national income according to the types of spending that generate it: consumption, investment, government purchases, and the current account balance. GDP, equal to GNP less net receipts of factor income from abroad, measures the output produced within a countrys territorial borders. o Gross domestic product (GDP): measures the final value of all goods and services that are produced within a country in a given time period GDP = GNP net receipts of factor income from the rest of the world Net receipts = payments from foreign countries for factors of production - payments to foreign countries for factors of production GDP does not correct for portion of countrys production carried out using services provided by foreign owned capital, but GNP does Transfer payments (such as social security) are not included in GDP b/c do not require participants to give anything in return o Ways to measure GNP Expenditure approach: C + I + G + X M Income approach: W + R + Profit + Rent Value added at each step of production o GNP is the value of all final goods and services produced by a nations factors of production in a given time period Factors of production: factors used to produce goods and services (labor services), physical capital (like buildings and equipment), natural resources, and others Basic measure of a countrys output is calculated by adding up the market value of all expenditures on final output o The value of final goods and services produce by US-owned factors of production are counted as US GNP In an economy closed to international trade, GNP must be consumed, invested, or purchased by the government. By using current output to build plant, equipment, and inventories, investment transforms present output into future output. For a closed economy, investment is the only way to save in the aggregate, so the national saving must equal investment....
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