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1、International financenLecture 8: national income accounting and the balance of paymentsnLecture 9: Exchange Rates and the Foreign Exchange Market: An Asset ApproachnLecture 10:Money,Interest Rates,and Exchange ratesnLecture 11: Price Levels and Exchange Rates in the Long Run (a monetary approach)nLe
2、cture 12: Output and the Exchange Rate in the Short RunnLecture13:International macroeconomic policylecture 8: national income accounting and the balance of paymentsnKey reading:nK&O(2011),International Economics: Theory and Policy .Chap.12Outlines of lecture 8nNational income accounting(review)nGDP
3、 and the trade balancenNational saving, investment and the current accountnThe balance of payments accountsnthe balance of current accountnthe balance of capital and financial accountnThis chapter ,we will review the concept of GDP and examine the interactions among various components of GDPnWe will
4、 go beyond trade in goods and services by considering a countrys balance of payments .nMicroeconomics(what does microeconomics focus on?nIt studies the effective use of scarce resources from the perspective of individual firms and consumers.nMacroeconomics(what does macroeconomics focus on?)nIt stud
5、ies how economies overall levels of employment, production, and growth are determined.nIt emphasizes four aspects of economic life in international economics:nUnemploymentnSavingnTrade imbalancesnMoney and the price levelNational income accounting(review)nThe national income accounts and the balance
6、 of payments accounts are essential tools for studying the macroeconomics of open, interdependent economiesNational income accounting(cont.) nReview National Income AccountingnThe measurement of GDPnThe components of GDPNational income accounting(cont.)nGross Domestic Product (GDP)nIt measures the v
7、olume of production within a countrys borders.nIt equals GNP minus net receipts of factor income from the rest of the world.nFinal goods and servicesnReported market transactionsnActivities that are not reported are not included in the calculation of GDPNational income accounting(cont.)nReal GDP and
8、 nominal GDPnReal GDP is the value of final output measured in constant pricesnNominal GDP is the market value of final output measured in current pricesNational income accounting(cont.)nThe components of GDP(?)National income accounting(cont.)nConsumptionnThe portion of GNP purchased by the private
9、 sector to fulfill current wantsnInvestmentnThe part of output used by private firms to produce future outputnGovernment PurchasesnAny goods and services purchased by federal, state, or local governmentsNational income accounting(cont.)Chinas GNP and Its Components(2010)National income accounting(co
10、nt.)GDP and the Trade BalancenGDP in an Closed Economy Y=C+I+GnGDP in an Open Economy Y=C+I+G+(X-M)Question: why are imports subtracted off ? GDP and the Trade Balance(cont.)nImports, Exports, and GDP X-M=Y-C-G-Inexports minus imports are equal to GDP for a country minus consumption, investment ,and
11、 government spendingnTrade surplus: the country “lends” the difference to foreignersnTrade deficit: the country “borrow” from the foreigners.GDP and the Trade Balance(cont.)nDiscussion: trade surplus is good while deficit is bad?National saving, investment and the current accountnDiscussion: What ca
12、use trade imbalance?National saving, investment and the current account(cont.)nNational saving (S) = national income (Y) that is not spent on consumption (C) or government purchases (G).nS=Y C G nIt always equals investment in a closed economy.nA closed economy can save only by building up its capit
13、al stock (S = I).National saving, investment and the current account (cont.)An open economy can save either by building up its capital stock or by acquiring foreign wealth (S = I + CA).CA = Y (C + I + G )implies CA = (Y C G ) I = S Icurrent account = national saving investmentcurrent account = net f
14、oreign investmentnA country that imports more than it exports has low national saving relative to investmentnA countrys CA surplus is referred to as its net foreign investment.nWhen S I, then CA 0. National saving, investment and the current account (cont.)nS =Sp + Sg = (Y C T) + (T G) nCA = Sp + Sg
15、 I = Sp government deficit InGovernment deficit is negative government savingnequal to G T nA high government deficit causes a negative current account balance, all other things equal. nHow to adjust to Trade Imbalances?nfirst, change the level of savings n second, change the level of investment nDo
16、 you think it is a good choice from the long run?n third, change taxesn fourth, change government spendingNational saving, investment and the current account (cont.)The Balance of Payment AccountsnBalance of paymentsn a summary of all the international transactions of a countrys residents with the r
17、est of the world during a year nPlease list some kinds of possible transactions between a countrys residents with the rest of the world Balance of Payments Accounts (cont.)nThe balance of payment accounts are separated into 3 broad accounts:ncurrent account: accounts for flows of goods and services
18、(imports and exports).nfinancial account: accounts for flows of financial assets (financial capital).ncapital account: flows of special categories of assets (capital), typically non-market, non-produced, or intangible assets like debt forgiveness, copyrights and trademarks.Balance of Payments Accoun
19、ts (cont.)nBalance on current accountnan accounting of international transaction that includes goods, services, investment income and unilateral transfersnMerchandise trade balance: the difference between exports and imports of goodsnThe balance on servicesnThe balance on investment incomenUnilatera
20、l transfersBalance of Payments Accounts (cont.)nBalance on financial account na recording of changes in the holdings of foreign assets by domestic residents and domestic assets by foreign residentsn list some types of foreign assets.Balance of Payments Accounts (cont.)nWhere official international r
21、eserve assets include gold, foreign currency holdings of the central bank, and special drawing rights(SDR) Balance of Payments Accounts (cont.)nBalance on Capital accountna recording of changes in the holdings of non-financial assets including debt forgiveness and assets of immigrantsThe Balance of
22、Payments Accounts U.S. Balance of Payments Accounts for 2000 (billions of dollars)The Balance of Payments AccountsContinuedBalance of Payments Accounts (cont.)nTotal inflows and outflows of dollars will be equal ,a current deficit will be matched by an equal capital and financial accounts surplusnCu
23、rrent account + financial account + capital account = 0n It is common for a developing country to have a current account deficit and a capital/financial surplus as relatively account surplusexercisenWhich of the following is entered as a credit in the U.S. balance of payments? nA construction compan
24、y in the U.S. imports $5 million worth of steel from Japan nGold leaves the U.S. Treasury for another country. nAn American auto manufacturer exports $56 million in cars to Europe nThe United States grants $4 billion in aid to Russia National saving, investment and the current account (cont.)nTrue o
25、r falsenPersistent trade imbalances are the result of the unfair foreign competion and high trade barrier in foreign marketBalance of Payments Accounts (cont.)nTrue of falsenIf you receive a 300 check from your aunt in London, the value of that check will appear in the unilateral transfers category
26、of the balance of payments.GDP and the Trade Balance(cont.)nT OR F nimports are subtracted off because they represent a cost to the economy as higher imports imply that goods which might have been produced at home are now being produced abroad nDiscussionnPlease analysis the structure of BOP of China from 2005-2010 Essay questionsnThe items in Balance of Payments AccountsnHow to adjust trade imbalance ?
