Summary International Finance Theory and Policy, Global Edition

ISBN-10 1292065192 ISBN-13 9781292065199
311 Flashcards & Notes
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This is the summary of the book "International Finance Theory and Policy, Global Edition". The author(s) of the book is/are Paul Krugman Maurice Obstfeld Marc Melitz. The ISBN of the book is 9781292065199 or 1292065192. This summary is written by students who study efficient with the Study Tool of Study Smart With Chris.

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Summary - International Finance Theory and Policy, Global Edition

  • 13.1 The National Income Accounts

  • Gross national product (GNP)
    The value of all final goods and services produced by the country's factors of production and sold on the market in a given time period. It is the market value of all expenditures on final output. A country's final output is purchased through: Consumption, Investment, Government purchases and the current account balance. 
  • 13.1.1 National Product and National Income

  • GNP must equal its national income
    every dollar used to purchase goods or services automatically ends up in somebody's pocket. (it is only about the sale of final goods, so it was counted in GNP at the time it was first sold.)
  • 13.1.2 Capital Depreciation and International Transfers

  • Depreciation
    Reduces the income of capital owners (GNP does not take this into account)
  • Net national product (NNP)
    GNP - depreciation
  • Unilateral transfers
    gifts from residents of foreign countries. Are part of a country's income but are not part of its product, and they must be added to NNP in calculations of national income. 
  • National income
    = GNP - depreciation + net unilateral transfers. 
  • 13.1.3 Gross Domestic Product

  • Gross domestic product (GDP)
    measure of national economic activity. It measure the volume of production within a country's borders. GNP = GDP + net receipts of factor income from the rest of the world.
  • GDP vs GNP
    GDP does not correct, GNP does, for the portion of countries production carried out using services provided by foreign-owned capital and labor. 
  • 13.2 National Income Accounting for an Open Economy

  • Open vs closed economy
    In open economies, savings and investment are not necessarily equal, as they are in a closed economy. This occurs because countries can save in form of foreign wealth by exporting more than they import, and they can dis-save(reduce their foreign wealth) by exporting less than they import. 
  • 13.2.1 Consumption

  • Consumption
    The portion of GNP purchased by private households to fulfill current wants. Largest component of GNP
  • 13.2.2 Investment

  • Investment
    The part of output used by private firms to produce future output. Are used to increase the nations stock of capital. 
  • 13.2.3 Government Purchases

  • Government purchases
    Any goods and services purchased by federal, state, or local governments. It includes investment as well as consumption purchases. 
  • 13.2.4 The National Income Identity for an Open Economy

  • Fundamental identity for closed economies
    Y=C+I+G. (Y= GNP)
  • National income identity for an open economy
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Hebben chimpansees of mensen een beter kortetermijngeheugen?
A change in Ms will lead to future increases in the price level, because
  1. Excess demand for output and labor. ( the demand for goods will increase and wages will increase)
  2. Inflationary expectations. (if everyone expects the price level to rise in the future, their expectation will increase the pace of inflation today)
  3. Raw materials prices. (mostly sold in markets where prices adjust sharply even in the short run, this will lead to higher prices) 
Price level is falling.
Price level is rising
The influence of a permanent increase in Ms on the exchange rate
A permanent increase in Ms causes a proportional long-run depreciation of its currency against foreign currencies. A permanent decrease in Ms causes a proportional long-run appreciation of its currency against foreign currencies. 
A permanent increase in money supply
Causes a proportional increase in the price level's long-run value. If the economy is initially at full employment, a permanent increase in the money supply eventually will be followed by a proportional increase in the price level. 
The effect of money supply on price levels in the long run
An increase in the money supply causes a proportional increase in its price levels. This needs to happen to maintain the equilibrium in the money market.  
The long-run equilibrium price level
P=Ms/L(R,Y). The value of p that satisfies this condition when interest rate and output are at full employment level.
An economy is in the long-run equilibrium when,
It is the position it would eventually reach if no new economic shocks occurred during the adjustment to full employment. Wages and prices have had enough time to adjust to their market-clearing levels. 
What happens when money supply decreases?
Ms/P line shifts upwards, this will rise the interest rate and will lead to an appreciation of the currency.