Term
Explain the difference between “demand pull” and “supply push” factors that are
involved in the determination of international migration. Then identify and explain
the third factor that is not included in either one of these. |
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Definition
Demand pull factors are economic conditions in the receiving country.
Supply push factors are economic conditions in the sending country.
Not included in these two are the third, “social networks,” which refers
to linkages between people in both countries. See Gerber, Ch. 13. |
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Term
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Definition
| Direct Foreign Investment |
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Term
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Definition
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Term
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Definition
| Transnational Corporation |
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Term
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Definition
| Majority-owned Foreign Affiliate |
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Term
| What are three ways a company in one country can serve (sell its product to) a market in a foreign country? |
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Definition
Exporting (produce its product at home and export it to the foreign country)
Licensing (license a foreign company to produce it there, paying a fee or
royalty to the home country)
FDI (engage in foreign direct investment to establish a subsidiary in the
foreign country to produce the product. |
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Term
| How could U.S. firms doing FDI abroad cost jobs in the United States? How could it save jobs in the United States? |
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Definition
FDI could cost jobs if a U.S. firm moves production abroad that it
would otherwise have continued to do in the U.S. It could save jobs if
moving part of a firm’s operations abroad permits it to stay in business
when it otherwise would not, thus saving the jobs of those it continues to
employ in the U.S. |
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Term
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Definition
A record of transactions in goods, services,
investment income, and unilateral transfers
between residents of a country and the rest of the
world. |
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Term
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Definition
| The value of a country’s exports minus the value of its imports |
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Term
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Definition
Holdings by governments and central banks of
assets – primarily foreign currencies but also
gold and SDRs – for use in settling international debts and intervening in the exchange market. |
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Term
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Definition
| Debt incurred without the consent of the people and that was not used for their benefit. |
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Term
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Definition
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Term
| Saving (in terms of income and consumption) |
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Definition
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Term
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Definition
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Term
| The Balance on Financial Account, BF |
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Definition
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Term
| The relationship between saving, investment, and the trade balance |
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Definition
S = Y − C
= (C + I + X − M) − C
= I + X − M
= I + BT
Thus BT = S − I |
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Term
| Using the accoutning identity that BT+BF = 0, show how saving and investment are related to international borrowing and lending. That is, derive an expression for S-I in terms of L and B. |
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Definition
From BT + BF = 0, it follows that BT = − BF
Therefore, using the result of parts (e) and (d),
S − I = BT = − BF = L − B |
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Term
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Definition
| The spot market involves transactions in the present; |
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Term
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Definition
the forward market involves contracts today for
transactions that will take place in the future. |
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Term
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Definition
Interest rate arbitrage is the transfer of funds to
another currency to take advantage of a higher
interest rate. |
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Term
| Covered interest arbitrage |
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Definition
Covered interest arbitrage is the same
thing, accompanied by a forward-market transaction
to protect against changes in exchange rates. |
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Term
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Definition
A real exchange
rate adjusts this for changes in price levels in both
currencies. |
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Term
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Definition
The nominal exchange rate is expressed in units of
one currency per unit of the other. |
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Term
| What are the three rules of the gold standard? That is, what are the rules that a central bank of a country must follow in order to maintain a "gold exchange standard?" |
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Definition
i. Fix the value of the currency in terms of gold. (When two countries do this,
it also fixes the exchange rate between their two currencies.)
ii. Keep the supply of domestic money fixed in some constant proportion to their
supply of gold. (Thus their money supply rises and falls as they acquire and
lose gold.)
iii. Stand ready to redeem their own currency with payments in gold, and permit
gold to be exported and imported. (This both causes the market exchange
rate to equal the official one, and causes the gold stock, and hence the money
supply, to respond to excess supply and demand for the currency.) |
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Term
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Definition
Adoption of the U.S. dollar as the currency of a country other than the
United States. |
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Term
| Over-valued exchange rate |
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Definition
A pegged exchange rate that is set higher than (that is, appreciated with
respect to) the rate at which supply would equal demand for foreign
exchange in the absence of exchange market intervention (or the rate
dictated by Purchasing Power Parity). |
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Term
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Definition
An exchange regime in which central banks occasionally sell or buy their
own currency as they try to nudge their exchange rate up or down. |
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Term
Write a short explanation of the economic message that is represented by the
triangle. |
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Definition
The triangle represents the supposed impossibility of having all three of
the objectives that label the sides of the triangle: monetary
independence, exchange-rate stability, and full financial market integration. A country can have any two of these, by adopting the policy
at corner of the triangle between two sides, but that policy will make the
objective on side opposite it impossible. |
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Term
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Definition
| European Currency Unit = the basket of European currencies that formed the basis of the European Monetary System |
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Term
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Definition
Economic and Monetary Union = group of countries that set out through the
Maastricht Treaty to unify their economies and adopt a common currency |
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Term
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Definition
European Monetary System = the system established in 1979 in which the
European currencies pegged to each other but floated against outsiders and
used adjustments of the pegs and some capital controls to remain viable |
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Term
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Definition
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Term
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Definition
| Stability and Growth Pact |
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