Summary International Finance Theory and Policy, Global Edition

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ISBN-10 1292065192 ISBN-13 9781292065199
311 Flashcards & Notes
49 Students
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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 National income accounting and the balance of payments

  • Four main aspects in macroeconomics
    Unemployment, saving, trade imbalances & money and the price level.
  • Do chimpansees or humans have a better short-term memory?
    Chimpansees!
  • Hebben chimpansees of mensen een beter kortetermijngeheugen?
    Chimpansees!
  • Two essential tools in macroeconomics
    National income accounting & balance of payment accounting
  • 13.1 The National Income Accounts

  • The GNP (Gross National Product) is..
    The value of all the goods and services provided by the country's factors of production and sold on the market. (The market value of all expenditures on final output.)
  • Do chimpansees or humans have a better short-term memory?
    Chimpansees!
  • Do chimpansees or humans have a better short-term memory?
    Chimpansees!
  • 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. 
  • Gross national income = 
    Consumption + investment + government purchases + current account balance (Y = C + I + G + E - M)
  • National income accounting is.. 
    Classifying each transaction that contributes to national income according to he type of expenditure that gives rise to it.
  • 13.1.1 National Product and National Income

  • GNP a country generates over some time period must equal its national income, because every dollar used to purchase goods or services automatically ends up in somebody's pocket.
  • 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.)
  • Which sales are excluded from the GNP?
    Sales of intermediate goods and used goods. (To avoid double counting.)
  • 13.1.2 Capital Depreciation and International Transfers

  • NNP (Net National Product) = 
    GNP - depreciation
  • Depreciation
    Reduces the income of capital owners (GNP does not take this into account)
  • National Income = 
    GNP - depreciation + unilateral transfers
  • Net national product (NNP)
    GNP - depreciation
  • Unilateral transfers are
    Gifts from residents of foreign countries
  • 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. 
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Hebben chimpansees of mensen een beter kortetermijngeheugen?
Chimpansees!
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) 
Deflation
Price level is falling.
Inflation
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.