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INT ECONOMY AND FINANCES > 1 > Flashcards

1 Flashcards

1
Q

GNP definition

A

Value of all final G&S produces by a nation’s factor of production in a given time period

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2
Q

TorF : GNP measures the value of final goods/services

regardless of where in the world the production process is taking place

A

T

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3
Q

are goods produced by a canadian firm that produces in canada counted in GNP

A

yes

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4
Q

are goods produced by a canadian firm that produces in italy counted in GNP

A

yes

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5
Q

are goods produced by an italian firm that produces in canada counted in GNP

A

no

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6
Q

how is GNP calculated?

A

by adding expenditures on final G&S:

  • consumption
  • investment
  • gvnt purchases
  • current account
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7
Q

how is the current account calculated?

A

CA= net exports + net income from abroad + net unilateral transfers

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8
Q

what is the GNP mathematical equation?

A

Y = C + I + G + CA

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9
Q

what are the components of the current account?

A
  • net exports
  • net income from abroad
  • net unilateral transfers
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10
Q

what is the net income from abroad?

A

interest and dividend payments on international assets, earning of firms and worker operating in foreign countries

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11
Q

what is the net unilateral transfers?

A

remittances, donations, aids, pensions from abroad

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12
Q

is the net unilateral transfers small or large in developed countries?

A

small

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13
Q

what is the national income identity for a closed economy?

A

Y = C + I + G

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14
Q

what is the national income identity for a open economy?

A

Y = C + I + G + CA

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15
Q

what does CA represent in the national income identity for a open economy

A

it is the net expenditure by foreign individuals and institutions

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16
Q

what does C + I + G represent in the national income identity for a open economy

A

it is the net expenditure by domestic individuals and institutions

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17
Q

what does it mean when CA<0

A
  • Y < C + I + G (production is less than domestic expenditures)
  • IM > EX
  • Canada is borrowing from abroad to finance part of domestic expenditures
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18
Q

what does it mean when CA>0

A
  • Y > C + I + G (production is more than domestic expenditures)
  • IM < EX
  • Canada is lending to foreigners
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19
Q

what is the definition of GDP

A

value of all final goods and services that are produced within a country in a given time period

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20
Q

what is the difference between GDP and GNP

A 
GNP = C+I+G+CA
GDP = C+I+G+NX
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21
Q

how can we calculate GDP with GNP?

A

GDP = GNP - net income from abroad - net unilateral transfers

22
Q

shoes made in a nike plant in korea are recorded in GDP or GNP or both?

A
  • recorded in US GNP

- not recorded in US GDP

23
Q

toyota plant in Kentucky are recorded in GDP or GNP or both?

A
  • not recorded in US GNP

- recorded in US GDP

24
Q

Ford car produced in Detroit and sold in France are recorded in GDP or GNP or both?

A
  • recorded in both GNP and GDP
25
Q

what is national saving (S)?

A

it is national income (Y) that is not spent on private consumption (C) or gvnmt consumption (G)

26
Q

what is the national saving identity?

A

S = Y - C - G
or
S = I + CA

27
Q

what is the CA identity?

A

CA = S - I

28
Q

when there is a CA surplus (CA>0), it means that national saving…

A

is greater than investment (S>I)

29
Q

when there is a CA deficit (CA<0), it means that national saving…

A

is lower than investment (S

30
Q

national saving can be decomposed in …

A

private saving (Sp) and government saving (Sg)

31
Q

what is private saving?

A

the part of disposable income (national income minus taxes) that is saved rather than consumed

32
Q

what is the private saving identity?

A

Sp = Y - T - C
or
Sp = I + CA - (T - G)

33
Q

what is government saving?

A

tax revenue minus government purchases

34
Q

what is the gvnmt saving identity?

A

Sg = T - G

35
Q

what happens when T

A

tax revenue does not cover gvnmt expenditures, the gvnmt issues debt to finance the deficit

36
Q

what are the 3 forms that a country’s saving can take?

A
  • investment in domestic capital (I)
  • purchases of foreign assets (CA)
  • purchases of domestic gvnmt debt (issued to finance T>G)
37
Q

what does the BoP accounts record?

A

it records both the flows of G&S and flows of financial assets across countries

38
Q

what are the 3 types of international transactions that the BoP records

A
  • current account (CA)
  • financial account (FA)
  • capital account (KA)
39
Q

what is the current account?

A

CA: flows of G&S (IM & EX), interest and dividend payments, unilateral transfers

40
Q

what is the financial account?

A

flows of financial assets

41
Q

what is the capital account?

A

flows of special categories of assets (capital): typically nonmarket, non-produces or intangible assets like debt forgiveness, copyrights and trademarks

42
Q

is the capital account small or large in developed countries?

A

small

43
Q

what is the financial account identity?

A

sales of domestic assets to foreigners - purchases of foreign assets by domestic citizens

44
Q

FA: are sales of domestic assets to foreigners a financial inflow or outflow (credit or debit)?

A

it is a financial inflow = credit (+)

because the domestic economy acquires money during the transaction

45
Q

FA: are purchases of foreign assets by domestic citizens a financial inflow or outflow (credit or debit)?

A

it is a financial outflow = debit (-)

because the domestic economy gives up money during the transaction

46
Q

what are the 3 main subcategories of the FA?

A
  • official (international) reserve assets
  • all other assets
  • statistical discrepancy
47
Q

what is the official (international) reserve assets?

A

foreign assets held by central banks: foreign gvnmt bonds, foreign currency, gold

48
Q

what is the key principle of BoP accounting?

A

each international transaction involves 2 parties: once as a credit (+) and once as a debit (-)

49
Q

due to the double entry of each transaction, the BoP accounts will balance by the following equation:

A

CA + FA + KA = 0

50
Q

how does the BoP records a canadian purchase of a Fiat from Italy paying 30K CAD dollars?

A

CAD CA = -30K

CAD FA = +30K because foreigners are acquiring a CAD asset (CAD dollars)

51
Q

how does the BoP records a canadian buying apple shares for 10K US dollars?

A

CAD FA = - 10k since canadian acquires foreign asset

CAD FA = + 10k since foreigners acquire a CAD asset (CAD dollars needed to get US dollars)

52
Q

how does the BoP records the CAD bank forgiving a 50M debt owed by the gvnmt of Argentina?

A

CAD FA = +50M since foreigners are acquiring a CAD asset (CAD dollars)
CAD KA = -50M since there is a transfer to Argentina

INT ECONOMY AND FINANCES (11 decks)

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