Term
| What are the four different components of GNP? |
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Definition
| Consumption (C), Investment (I), Government purchases (G), Next Exports (EX-IM) |
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Term
| What does GNP consist of? |
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Definition
| GDP + Net Factor Payments from Abroad |
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Term
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Definition
| GDP is the value of domestic output (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) |
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Term
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Definition
C: expenditure by domestic consumers
I: expenditure by firms on buildings & equipment
G: expenditure by governments on goods and services (includes investment purchases)
NX: Net expenditure by foreigners on domestic goods and services |
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Term
| What 3 other things can Y be defined as? |
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Definition
1) The value of expenditure on final goods and services
2) Total spending by domestic residents + (EX - IM)
3) (C + G + I) + (EX - IM) = A + CA |
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Term
| What does Domestic Absorption consist of? |
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Definition
C + G + I = A
A stands for Domestic Absorption |
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Term
| What does the Current Account (CA) consist of? |
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Definition
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Term
| What conditions are fulfilled when there is a CA surplus? |
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Definition
Production > Domestic Expenditure
Exports > Imports
Current Account > 0
Trade Balance > 0 |
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Term
| What conditions are fulfilled when there is a Current Account deficit? |
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Definition
Production < Domestic Expenditure
Exports < Imports
Current Account < 0
Trade Balance < 0 |
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Term
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Definition
| Trade Balance is the net exports of goods and services. |
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Term
| On top of the trade balance, the Current Account includes what other term? |
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Definition
| Net Unilateral Transfers of Income |
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Term
| What are some examples of Net Unilateral Transfers of Income? |
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Definition
- Pension payments to retired citizens living abroad
- Reparation payments
- Foreign aid |
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Term
| Net unilateral transfers of income are part of _____ but are not a part of _____ |
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Definition
(1) a country's income (national income)
(2) its product (GNP, GDP) |
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Term
| Net unilateral transfers of income constitute ___ |
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Definition
| They constitute a part of the difference between NI and GNP (along with depreciation and indirect taxes) |
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Term
| What can changes in the current account be associated with? |
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Definition
| Changes in output and, thus, employment |
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Term
| What does the current account measure? |
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Definition
| The size and direction of foreign borrowing |
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Term
| The net foreign debt of a country increases by ____ |
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Definition
It increases by the amount of current account deficit.
The current account balance equals the change in the net foreign wealth |
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Term
| When a country has a current account surplus, what are its spending habits like? |
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Definition
| The country spends less than it produces. This means it can lend to foreigners. |
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Term
| What can we say about a country's consumption habits when it carries a CA deficit? |
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Definition
| It is importing present consumption and exporting future consumption. |
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Term
| What can we say about a country's consumption habits when it carries a CA surplus? |
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Definition
| It is exporting present consumption and importing future consumption. |
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Term
| What is the portion of output Y that is not devoted to either household consumption C or govt purchases G? |
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Definition
National Saving, S
S = Y - C- G |
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Term
| When does national saving, S, always equal investment? |
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Definition
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Term
| How is the Current Account related to National Saving in an open economy? |
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Definition
CA = EX - IM = Y - (C + I + G)
= (Y - C - G) - I
= S - I |
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Term
Current Account = National Saving - Investment
Current Account = Net Foreign Investment |
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Definition
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Term
| What can we say about a country's saving when IM > EX |
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Definition
| It has low national saving, relative to investment |
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Term
| How can an open economy save? |
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Definition
| either by building its capital stock or by acquiring foreign wealth |
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Term
| Countries can finance investment either by ___ |
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Definition
| saving, or by acquiring foreign funds which will equal the current account deficit |
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Term
| Define Private Saving (S^p) (equation) |
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Definition
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Term
| Define Government Saving (equation) |
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Definition
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Term
| What are some characteristics of the Balance of Payments Account? |
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Definition
- BoP is a record of the composition of the current account balance and the transactions that finance it
- it helps us evaluate the implications of a country's international transactions
- it keeps track of the country's payments to and its receipts from foreigners |
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Term
| An international transaction involves ____ |
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Definition
it involves two parties, and each transaction enters the accounts twice (once as credit +, and once as a debit -)
Any transaction resulting in a receipt from foreigners is entered in the BoP accounts as a credit (on the other hand, a payment to foreigners is entered as a debt) |
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Term
| What are the 3 accounts that make up the BoP Account, and what are some of their characteristics? |
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Definition
1) Current Account: transactions that arise from exports and imports of goods and services
2) Financial Account: transactions that arise from purchase or sales (flows) of financial assets (such as money, stocks, factories, property or govt debt)
3) Capital Account: flows of special categories of assets (capital), typically from non-market activities (e.g. debt forgiveness, copyrights, trademarks) |
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Term
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Definition
- Exports of Goods and Services
- Income payments and Receipts
- Unilateral Transfers |
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